6.4 Compound Interest

Abena invests $1,000 in a CD (certificate of deposit) earning 4% compounded annually. How much will Abena’s CD be worth after 3 years?

Abena invested $1,000 in a CD that earned 4% compounded annually, and the CD was worth $1,124.86 after 3 years. Had Abena invested in a CD with simple interest, how much would the CD have been worth after 3 years? How much more did Abena earn using compound interest?

In the following, compute the future value of the investment with the given conditions.

1. Principal is $5,000, annual interest rate is 3.8%, compounded monthly, for 5 years.
2. Principal is $18,500, annual interest rate is 6.25%, compounded quarterly, for 17 years.

Cody invests $7,500 in an account that earns 4.5% interest compounded quarterly (4 times per year). Determine the value of Cody’s investment after 10 years.

Kathy invests $10,000 in an account that yields 5.6% compounded daily. How much money will be in her account after 20 years?

Find the present value of the accounts under the following conditions.

1. $A$ = $250,000, invested at 6.75 interest, compounded monthly, for 30 years.
2. $A$ = $500,000, invested at 7.1% interest, compounded quarterly, for 40 years.

Pilar plans early for retirement, believing she will need $1,500,000 to live comfortably after the age of 67. How much will she need to deposit at age 23 in an account bearing 6.35% annual interest compounded monthly?

Suppose you have an investment paying a rate of 6% compounded quarterly. Determine and interpret that effective annual yield of the investment.

Calculate and interpret the effective annual yield on a deposit earning interest at a rate of 5% compounded daily.

Minh has a choice of banks in which he will open a savings account. He will deposit $3,200 and he wants to get the best interest he can. The banks advertise as follows:

Which bank offers the best interest?