SOLUTION: 9. Consider a CD paying 3.6% APR compounded monthly. a) Find the periodic interest rate _______ b) Find the future value of the CD if you invest $3250 for a term

Question 1041191: 9. Consider a CD paying 3.6% APR compounded monthly.
a) Find the periodic interest rate
_______
b) Find the future value of the CD if you invest $3250 for a term of four years.
answer A and B
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
3% is the apr.
this is equal to an annual interest rate of .03.
divide that by 12 to get the monthly interest rate of .03/12 = .0025.
that's your periodic interest rate.

formula for future value of a present amount is:
f = p * (1+r)^n
f is the future value
p is the present amount
r is the interest rate per time period.
n is the number of time periods.

your time periods are months.
the interest rate per month is the annual interest rate / 12.
the number of time periods is the number of years * 12.

you get:
r = .0025
n = 4*12 = 48
p = 3250

formula of f = p * (1+r)^n becomes:

f = 3250 * (1.0025)^48 = 3663.816068

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