Assume a 30-month CD purchased for pays simple interest at an annual rate of 5.5%.
1. How much total interest does it earn?
2. What is the balance at maturity?
(2 decimal places)
What is the initial cost of the CD?
To calculate the total interest earned and the balance at maturity for a 30-month CD with a simple interest rate of 5.5% per year, you can follow these steps:
Step 1: Calculate the annual interest rate
Since the interest rate is given as an annual rate of 5.5%, we need to calculate the monthly interest rate. To do this, divide the annual rate by 12 to get the monthly rate.
5.5% / 12 = 0.46% (rounded to 2 decimal places)
Step 2: Calculate the total interest earned
Multiply the monthly interest rate by the number of months (30) to find the total interest earned.
0.46% * 30 = 13.8% (rounded to 2 decimal places)
Step 3: Calculate the balance at maturity
To calculate the balance at maturity, add the total interest earned to the initial deposit.
For example, if the initial deposit is $1000:
Initial deposit: $1000
Total interest earned: $1000 * 13.8% = $138
Balance at maturity: $1000 + $138 = $1138
Therefore, the answers to the questions are:
1. The CD earns a total interest of $138.
2. The balance at maturity is $1138.