What would be the future value of a CD of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually?
A) $1,720
B) $1,960
C) $1,200
D) $1,216

Question

Quizplus · Accepted Answer

The future value of a compound interest investment is calculated using the formula $A = P(1 + \frac{r}{n})^{nt}$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount (the initial amount of money), $r$ is the annual interest rate (decimal), $n$ is the number of times that interest is compounded per year, and $t$ is the time the money is invested for in years. For a $1,000 CD at a 10% interest rate compounded semiannually for two years, the calculation is $A = 1000(1 + \frac{0.10}{2})^{2*2} = 1000(1 + 0.05)^4 = 1000(1.21550625) = 1215.51$, which rounds to $1,216.

What Would Be the Future Value of a CD of $1,000