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.