Problema Solution
On Melissa's 6th birthday, she gets a $6000 CD that earns 5% interest, compound semiannually. If the CD matures on her 14th birthday, how much money will be a available?
Answer provided by our tutors
P = $6,000 the principal
t = 14 - 6 = 8 years
r = 0.05 or 5% annual rate
m = 2 compounding period per year
i = 0.05/2 = 0.025 interest rate per period
n = 2*8 = 16 total number of compounding periods
A = future value (the money available on the maturity date)
A = P(1 + i)^n
A = 6000(1 + 0.025)^16
by solving we find
A = $8,907.03
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$8,907.03 will be available on her 14th birthday.