Question

Suppose you have $2000 and plan to purchase a 10 year-certificate of deposit that pays 11.1% interest, compounded annually. How much will you have when the CD matures?

Answer 1

Presently, I have $2000, so PV= -2000. I want to invest these $2000 in certificate of deposit.

Given the information, N=10, PV=-2,000, I/Y= 11.1% and PMT=0,

where, PV= Present value

N= no. of periods

I/Y= interest rate

PMT= payment made at end of each year

Thus, Future value of certificate of deposit is, USING FINANCIAL CALCULATOR, put N=10, PV=-2,000, I/Y= 11.1% and PMT=0 and press CPT and FV. Then , FV comes out to be $5,730.21. (We have taken 0 PMT because we are not paying any amount at the end of each year, since it is an investment, only investment at period 0 is made of $2,000.

Answer= $5,730.21