2 million jumbo CD is paying a quoted 3.55 percent interest rate on 90-day maturity CDs. How much money will you have at maturity if you invest in the CD? Please show your work:
Sol:
CD current value = $2,000,000
Interest rate (r) = 3.55%
Maturity (n) =90 days
To determine money will you have at maturity if you invest in the CD:
A banker's year of 360 days is used to compute interest for money market instruments issued in the US.
Maturity value = CD current value x (1+ (r x n/360)
Maturity value = 2,000,000 x (1+ (3.55% x 90/360)
Maturity value = 2,000,000 x (1+ (0.0355 x 0.25)
Maturity value = 2,000,000 x 1.008875
Maturity value = $2,017,750
Therefore money will you have at maturity if you invest in the CD will be $2,017,750
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