Question

Caroline is opening a CD to save for college. She is considering a 3—year CD or a 3 kg—year CD since she starts college around that time. She needs to be able to have the money to make tuition payments on time, and she does not want to have to withdraw money early from the CD and face a penalty. She has 519,400 to deposit. b. Hi: How much interest would she earn at 1.2% compounded monthly for 3 years? Round to the nearest cent. How much interest would she earn at 1.2% compounded monthly for 3}»; years? Round to the nearest cent. . Caroline decides on a college after opening the Egg-year CD, and the college needs the first tuition payment a month before the CD matures. Caroline must withdraw money from the CD early, after 3 years and 5 months. She faces two penalties. First, the interest rate for the last 5 months of the CD was lowered to 0.5%. Additionally, there was a $250 penalty. Find the interest on the last 5 months of the CD. Round to the nearest cent. . Find the total interest on the 3 yi—year CD after 3 years and 5 months. . The interest is reduced by subtracting the $250 penalty. What does the account earn for the 3 years and 5 months? Find the balance on the CD after she withdraws $12,000 after 3 years and 5 months. . The final month of the CD receives 0.5% interest. What is the final month's interest? Round to the nearest cent. . What is the total interest for the 3ié-year CD? Round to the nearest cent. . Would Caroline have been better off with the 3—year CD? Explain.

Answer 1

Caroline would earn $64,523 interest on a 3-year CD and $118,403 interest on a 3.5-year CD.

Caroline would earn $64,523 interest on a 3-year CD and $118,403 interest on a 3.5-year CD.

Here are the calculations for the interest earned on 3-year and 3.5-year CDs compounded monthly at 1.2%:

3-year CD

• Monthly interest rate = 1.2% / 12 = 0.1%
• Number of months = 3 years * 12 months/year = 36 months
• Future value = Principal * (1 + Monthly interest rate)^(Number of months)
• Future value = $519,400 * (1 + 0.001)^(36) ≈ $583,923
• Interest earned = Future value - Principal = $583,923 - $519,400 ≈ $64,523

3.5-year CD

• Monthly interest rate = 1.2% / 12 = 0.1%
• Number of months = 3.5 years * 12 months/year = 42 months
• Future value = Principal * (1 + Monthly interest rate)^(Number of months)
• Future value = $519,400 * (1 + 0.001)^(42) ≈ $637,803
• Interest earned = Future value - Principal = $637,803 - $519,400 ≈ $118,403

Therefore, Caroline would earn $64,523 interest on a 3-year CD and $118,403 interest on a 3.5-year CD.

Answer 2

Caroline would earn $64,523 interest on a 3-year CD and $118,403 interest on a 3.5-year CD.

How to solve

Here are the calculations for the interest earned on 3-year and 3.5-year CDs compounded monthly at 1.2%:

3-year CD

Monthly interest rate = 1.2% / 12 = 0.1%

Number of months = 3 years * 12 months/year = 36 months

Future value = Principal * (1 + Monthly interest rate)^(Number of months)

Future value = $519,400 * (1 + 0.001)^(36) ≈ $583,923

Interest earned = Future value - Principal = $583,923 - $519,400 ≈ $64,523

3.5-year CD

Monthly interest rate = 1.2% / 12 = 0.1%

Number of months = 3.5 years * 12 months/year = 42 months

Future value = Principal * (1 + Monthly interest rate)^(Number of months)

Future value = $519,400 * (1 + 0.001)^(42) ≈ $637,803

Interest earned = Future value - Principal = $637,803 - $519,400 ≈ $118,403

Therefore, Caroline would earn $64,523 interest on a 3-year CD and $118,403 interest on a 3.5-year CD.