Find the future value of a $12,000 Certificate of Deposit that pays compounded interest every three months at the rate of 8% per year. The CD has a term of 4 years.
a) Calculate the FV (Future Value) using the "Future Value or Compound Amount of $1.00" table in your textbook.
Reminder: To use Table 13-1, you need to calculate the Number of Periods and the Interest Rate per Period.
Number of periods= 16
Interest rate period= 8/4= 2% or .02
Corresponding value= 1.37279
Multiply the principal 1.37279 * 12,000 = 16,473.48
Future Value of the loan is $16,473.48
b) Calculate the FV (Future Value) using the formula: FV = P(1 + R)N
Reminder: Always show work. State the values that you are substituting into the formula.
Principal = 12,000
Rate = 8/4 = 2%
Number of Periods = 4 quarters/year * 4 years =16
12,000 (1 + .002) ^16 = 12,389.8141
FV = 12,389.81
c) How much interest was earned on the investment?
Use either the result from Part 2a or Part 2b, since they are slightly different for your calculation.
12,389.81 - 12,000.00 = $389.81 interest earned on investment