When you buy a certificate of deposit (CD), you are investing your money in an account that earns interest for a specific period of time. A CD matures when it has been invested for the required amount of time.Assume that you have 3000 to invest in a 4-year CD with an APR of 3% compounded daily. When the CD matures, how much interest will you have earned? Round your result to the nearest cent.

Solution

Wh e n yo u b u y a cer t i f i c a t e o f d e p os i t (C D), yo u a re in v es t in g yo u r m o n ey in an a cco u n t t ha t e a r n s in t eres t f or a s p ec i f i c p er i o d o f t im e . A C D ma t u res w h e n i t ha s b ee n in v es t e d f or t h e re q u i re d am o u n t o f t im e . A ss u m e t ha t yo u ha v e 3000 t o in v es t in a 4 - ye a r C D w i t h an A PR o f 3% co m p o u n d e d d ai l y . Wh e n t h e C D ma t u res, h o w m u c h in t eres t w i ll yo u ha v e e a r n e d ? R o u n d yo u r res u lt t o t h e n e a res t ce n t .

Interest : 382.47

Solution steps

Translate the problem into an equation:

3382.47387 \dots = 3000 + I

Solve for

I, 3382.47387 \dots = 3000 + I : I = 382.47

Interest : 382.47