Question

Assume.that.a.30-month CD purchased for $5000 pays simple interest at an annual rate of 5.5%. How much total interest does it earn?$What is the balance at maturity?

Answer 1

From the question, we can derive the following information

$\begin{gathered} \text{Principal}=\text{ \ 5000} \\ \text{Time =30 months =}2.5\text{ years} \\ \text{Rate =5.5\%} \end{gathered}$

Explanation

To solve we will use the formula for simple interest.

$I=\frac{\text{prt}}{100}$

Therefore,

$\begin{gathered} I=\frac{5000\times2.5\times5.5}{100} \\ =50\times2.5\times5.5=687.5 \end{gathered}$

Answer 1: It earns an interest of $687.5

To get the balance at maturity, we will add the interest to the cost of the CD purchased

$5000+687.5=5687.5$

Answer 2: Balance at maturity= $5687.5