Question

9.
Diane Barvello deposits $1,380 in a certificate of deposit for 3 years.
Find the compound amount if the interest rate is 5% compounded daily.


$1,587.00

$1,603.31

$1,597.53

$1,603.32

Answer 1

To solve this we are going to use the formula for compounded interest: $A=P(1+ \frac{r}{n})^{nt}$
where 
$A$ is the final amount after $t$ years 
$P$ is the initial amount 
$r$ is the interest rate in decimal form 
$n$ is the number of times the interest is compounded per year
$t$ is the time in years 

We know for our problem that $P=1380$, $r= \frac{5}{100} =0.05$, and $t=3$. Since the interest is compounded daily, it is compounded 365 times in year; therefore, $n=365$. Lets replace those values in our formula to find $A$:
$A=P(1+ \frac{r}{n})^{nt}$
$A=1380(1+ \frac{0.05}{365})^{(365)(3)}$
$A=1603.31$

We can conclude the amount in Diane's after 3 years will be $1,603.31