Problema Solution
The manager of a money market fund has invested $4.2 million in certificates of deposit that pay interest at the rate of 5.4%/year compounded quarterly over a period of 5 years. How much will the investment be worth at the end of 5 years?
Answer provided by our tutors
P = $4,2 million the principal
r = 0.054 or 5.4% annual rate
m = 4 compounding period per year (compounded quarterly)
i = 0.054/4 interest rate per period
t = 5 years is the time in years
n = t*m = 5*4 = 20 total number of compounding periods
A = the future value
A = P(1 + i)^n
A = 4.2(1 + 0.054/4)^20
........
........
A = $5.49192189 million
A = $5,491,921.89
At the end of 5 years the investment will be wort $5,491,921.89.