How much interest did you earn on the investment?

Question

You have just graduated from high school and received $1500 in gifts from family and friends. You also received scholarships in the amount $800. If you deposit the total amount received into a 24-month CD at 5.5% compounded daily,

Answer 1

The formula for daily compounding is

 

FV = PV (1+i/365)^365t

where FV is future value (aka accumulated value)

PV is present value

i is interest rate and

t is time in years.

 

Note that this is a 24-month CD which is 2 years.

 

FV = (1500+800) (1+.055/365)^(365)(2)

FV = 2300 (1.00015)⁷³⁰

FV = $2,566.14

 

Interest earned= FV - PV

Interest earned = 2566.14 - 2300 = $266.14