After saving $250, Li invests in a certificate of deposit (CD) that pays 2.6% annual interest. What will be the value of Li’s CD after she has had it for one year? Show your work
To find the value of Li's CD after one year, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/CD
P = the principal investment amount (initial amount)
r = annual interest rate (as a decimal)
n = number of times that interest is compounded per year
t = number of years the money is invested for
In this case,
P = $250
r = 2.6% = 0.026 (as a decimal)
n = 1 (it is compounded annually)
t = 1 (one year)
Plugging these values into the formula:
A = 250(1 + 0.026/1)^(1*1)
= 250(1 + 0.026)^1
= 250(1.026)^1
= 250(1.026)
= $257.75
Therefore, the value of Li's CD after one year will be $257.75.