Question

Gabriel put $6000 in a 2-year CD paying 4% interest, compounded monthly. After 2 years, he withdrew all his money. What was the amount of the withdrawal?

Answer 1

First, we calculate for the effective annual interest given the interest in the scenario.
ieff = (1 + i/m)^m - 1
Substituting the values,
ieff = (1 + 0.04/12)^12 - 1 = 0.0407
The effective interest is equal to 4.07%.

The future amount after 2 years,
F = ($6000) x (1.0407)^2 = $6498.86