Problema Solution

If you invest $5,000 in a CD for 5 years at .25% interest compounded quarterly what will the future value of the CD be?

Answer provided by our tutors

The future value A after t years will be


A = P (1 + (r/n))^ (n*t)


P = principal amount (the initial amount)


r = annual rate of interest (as a decimal)


t = number of years the amount is deposited or borrowed for


A = amount of money accumulated after n years, including interest.


n = number of times the interest is compounded per year


In our case we have


P = $5,000

t = 5 years

r = 25% = 0.25

n = 4 times per year (quarterly )


A = 5000 * (1 + (0.25/4))^(4*5)


A = 5000 * (1 + (0.25/4))^20


A = $ 16,809.27 approximately.