Question

1. You invest $1,000 in a certificate of deposit that matures after ten years and pays 5 percent interest, which is compounded annually until the certificate matures. a. How much interest will the saver earn if the interest is left to accumulate? b. How much interest will the saver earn if the interest is withdrawn each year? c. Why are the answers to a and b different?

Answer 1

Answer and Explanation:

a. The computation of the interest earned is given below:

= $1,000 × (1.05)^10 - $1,000

= $628.29

b. Now the interest earned in case of withdrawn is

= $1,000 × 5% × 10

= $500

c. In part a there is a compound interest while on part b there is a simple interest so the both answers should be different

The same would be relevant and considered too