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4. You pay $10,000 today for a bank CD which matures in 4 years at a...

4. You pay $10,000 today for a bank CD which matures in 4 years at a rate of 5%. How much will you end up receiving at maturity assuming:
a) Annual compounding
b) Monthly compounding
c) Daily compounding
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Answer #1

a) Annual compounding

Future value = Deposit * (1 + Interest)^years

Future value = 10000 * (1 + 0.05)^4

Future value = 10000 * 1.215506

Future value = $12155.06

b) Monthly compounding

Future value = Deposit * (1 + Interest per month)^total compounding periods

Future value = 10000 * (1 + 0.04167)^48

Future value = 10000 * 1.220895

Future value = $12208.95

c) Daily compounding

Future value = Deposit * (1 + Interest per day)^total compounding periods

Future value = 10000 * (1 + 0.000137)^(365*4)

Future value = 10000 * 1.221386

Future value = $1.2213.86

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