Question

Another bank advertises a 9 month CD with a 6.15% APY, $1000 minimum deposit, nominal annual interest rate of 5,97%, compounded daily, using 30 day months, and hence a 360 day year.

(a) Rounding to the nearest penny, compute the future value of this 9 month CD with a principal of $5,000 using the nominal compound interest rate of 5.97% and the compounding procedure actually used by the bank.

(b) Rounding to the nearest penny, compute the future value of the same CD using the APY in your calculations instead.

(c) Comment upon the dollar amounts computed in parts (a) and (b).

Answer 1