Question

you plan to invest 5000 into a bank certificate of deposit for five years. the certificate of deposit pays a 6 percent annual nominal rate. What is the value of your investment in five year if the 6 percent rate is compounded at the following periods

Answer 1

Answer:

FV= $6,691.13

Explanation:

Giving the following information:

Initial investment= $5,000

Number of periods= 5 years

Interest rate= 6% compounded annually

To calculate the future value, we need to use the following formula:

FV= PV*(1+i)^n

FV= 5,000*(1.06^5)

FV= $6,691.13

Now, imagine that the interest rate is compounded quarterly:

i= 0.06/4= 0.015

n= 5*4= 20

FV= 5,000*1.015^20

FV= $6,734.28