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acedstud
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Asked: 2021-03-23T09:24:10+00:00 In: ,

Question of the Day (23/03/2021)

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Iris invested $8,000 in a 9-month term CD which offers an annual compound interest rate of 8% compounded monthly. What is the value of her investment at the maturity of the CD?

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  2. acedstud
    This answer was edited.

    The future value (FV) of an investment (P) at an annual compound interest rate of (r) compounded t times a year for n years is given by

    FV=P\left(1+\dfrac{r}{t}\right)^{nt}

    Here: P=$8,000, r=8\%=0.08, n=9\text{ months}=\dfrac{9}{12}\text{ years}.

    Since the CD is compounded monthly, that means that in a year it will be compounded 12 times, so t=12.

    Substituting all values into the formula, we have:

    FV=8000\left(1+\dfrac{0.08}{12}\right)^{\frac{9}{12}\times12}

    =8000(1+0.006667)^9=8000(1.006667)^9

    =8000\times1.061625

    =8,493.00

    Therefore, the value of her investment at the maturity of the CD is $8,493.00.

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