What is the future value of 10,000 invested in 5 years Certificate of deposit at 4%p.a, intrest compouneded semi- annially at the end of 5 years, assuming that the interest and principle are both paid at maturity
To calculate the future value of an investment, we can use the formula for compound interest:
Future Value = Principal Amount * (1 + (Interest Rate / n))^(n * Time)
Where:
Principal Amount = $10,000
Interest Rate = 4% per annum
n = number of compounding periods per year (in this case, it's semi-annually, so n = 2)
Time = 5 years
Let's substitute the values into the formula:
Future Value = $10,000 * (1 + (0.04 / 2))^(2 * 5)
Simplifying further:
Future Value = $10,000 * (1 + 0.02)^10
Now we can use a calculator to find the exponent:
Future Value = $10,000 * (1.02)^10
Calculating further:
Future Value = $10,000 * 1.218993
Finally, we can find the future value:
Future Value = $12,189.93
Therefore, the future value of a $10,000 investment in a 5-year Certificate of Deposit at 4% interest compounded semi-annually would be approximately $12,189.93.