Question
Asked Feb 11, 2019

1. You invest $1,000 in a certificate of deposit that matures after ten years and pays 5 percent interest, which is compounded annually until the certificate matures. a. How much interest will you earn if the interest is left to accumulate?

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Expert Answer

Step 1

Principal amount, P = $ 1,000

Rete of interest, R = 5%

Period, N = Time to maturity = 10 years

Step 2

Hence, maturity amount, A   will be given by compound interest formula:

A = P x (1 + R)N = $ 1,000 x (1 + 5%)10 = $ 1,628.89 

Step 3

Hence, interest earned = Maturity amount - Principal...

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