Your brother has asked you to help him to choose an investment. He has $6,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?
A) $6,550
B) $6,529
C) $6,107
D) $6,216

Question

Quizplus · Accepted Answer

The formula to calculate the future value of a CD with quarterly compounding is:

FV = P(1 + r/n)^(n*t)

Where:
P = principal amount = $6,000
r = annual interest rate = 4.25%
n = number of times interest is compounded per year = 4 (quarterly)
t = time period in years = 2

Plugging in these values, we get:

FV = 6,000(1 + 0.0425/4)^(4*2) = $6,528.77

Therefore, the best choice is B with a value of $6,529.

Your Brother Has Asked You to Help Him to Choose