A saver places

# A saver places - b How much interest will the saver earn if...

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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
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Unformatted text preview: b) How much interest will the saver earn if the interest is withdrawn each year?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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## This note was uploaded on 04/01/2012 for the course FINC 354 taught by Professor Gibbons-cobb during the Spring '12 term at Columbia College.

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