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# A saver places

Course: FINC 354, Spring 2012

School: Columbia College

Word Count: 105

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A saver places \$1,000 in a certificate of deposit that matures after 20 years and that each year pays 4% interest, which is compounded annually until the certificate matures. a) How much interest will the saver earn if the interest is left to accumulate? \$1,000 x 2.191 = \$2,191; \$1,000 principal + \$1,191 in interest They will accumulate \$1,191 in interest b) How much interest will the saver earn if the interest is...

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A saver places \$1,000 in a certificate of deposit that matures after 20 years and that each year pays 4% interest, which is compounded annually until the certificate matures. a) How much interest will the saver earn if the interest is left to accumulate? \$1,000 x 2.191 = \$2,191; \$1,000 principal + \$1,191 in interest They will accumulate \$1,191 in interest b) How much interest will the saver earn if the interest is withdrawn each year? They would earn \$40; \$1,000 x 1.04 per year 20 years x \$40 = \$800 c) Why are the answers to a and b different? because in part a the interest principal amount increases yearly , it is like interest deposit. In part b interest principal is always 1000.A saver places \$1,000 in a certificate of deposit that matures after 20 years and that each year pays 4% interest, which is compounded annually until the certificate matures. a) How much interest will the saver earn if the interest is left to accumulate? \$1,000 x 2.191 = \$2,191; \$1,000 principal + \$1,191 in interest They will accumulate \$1,191 in interest b) How much interest will the saver earn if the interest is withdrawn each year? They would earn \$40; \$1,000 x 1.04 per year 20 years x \$40 = \$800 c) Why are the answers to a and b different? because in part a the interest principal amount increases yearly , it is like interest deposit. In part b interest principal is always 1000.

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