Dixie Bank offers a certificate of deposit with an option to select your own investment period. Jonathan has $6,000 for his CD investment.

If the bank is offering a 5% interest rate, compounded annually, how much will the CD be worth at maturity if Jonathan picks a:
(a) two-year investment period?
(b) five-year investment period?
(c) eight-year investment period?
(d) twenty-year investment period?

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tallinn tallinn · Answer 1 · 2020-02-03T06:41:00+01:00

Answer:

The maturity value of certificate of deposit(CD) would be:

A = P [tex](1\ +\ r)^{n}[/tex]

wherein, A= Amount

P= Principal

r= rate of interest compounded annually

n= no of years to maturity

(a) two year investment plan:

$6000 (1 + .05) (1 + .05) = $6615

(b) five year investment plan:

= $6000 [tex](1\ +\ .05)^{5}[/tex] = 6000 (1.2763) = $7657

(c) eight year investment plan:

= $6000 [tex](1\ +\ .05)^{8}[/tex] = $6000(1.4774) = $8865 approx.

(d) twenty year investment = $6000 [tex](1\ +\ .05)^{20}[/tex] = $6000 (2.6533) = $15,920 approx