Question

1) Sally invested $5,000 in a 5-year certificate of deposit. The interest rate was2.5%.lle is beA) How much interest did she earn at the end of the five year period?B) What was the C.D. worth at the end of the five year period?

Answer 1

A)

Interest rate is 2,5% per year

That means that each year Sally's C.D. founds will be increased by a factor 1.025

Then, after 5 years, Sally's founds will be increased by a factor 1.025^5 = 1.1314, wich represents an interest rate of 13,14% (0.1314*5000 = 657.04 $) in five years.

B) Therefore, final C.D. worth at the end of the five year period is 1.1314*5000 = 567.04 $