Problema Solution
Caleb deposited $2,700 in a 4-year CD at Bagel Bank. The CD pays 4% interest, compounded semiannually. The interest is added to the balance and is accumulated with the original investment. Caleb has to pay thirty percent in taxes on the interest earned each year. How much in taxes will Caleb have to pay on the interest earned in the first year?
Answer provided by our tutors
the interest after the first year is:
2700(1 + 0.04/2)^2 - 2700 = $109.08
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30% of taxes on the interest earned in the first year is:
0.30*109.08 = $32.724.