Contemporary Mathematics for Business and Consumers, Third Edition

Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 2
Chapter 11 - Section I - Exercise 30

The First National Bank is offering a 6-year certificate of deposit (CD) at 4% interest,
compounded quarterly; Second National Bank is offering a 6-year CD at 5% interest,
compounded annually.

a. If you were interested in investing $8,000 in one of these CDs, calculate the compound
amount of each offer.

Number of years = 6

Principal = $8,000.00

First National Second National

Periods per year = 4 1

Nominal rate = 4.0% 5.0%

Interest rate per period = 1.0% 5.0%

Compounding periods = 24 6

Table factor = 127% 134%

Compound amount = $10,157.88 $10,720.77

b. What is the annual percentage yield of each CD?

Number of years = 6

Principal = $8,000.00

First National Second National

Periods per year = 4 1

Nominal rate = 4.0% 5.0%

Interest rate per period = 1.0% 5.0%

 Compounding periods = 24 6

Table factor = 1.26973 134%

Compound amount = $10,157.88 $10,720.77

Interest = $2,157.88 $2,720.77

APY = 4.06% 5.00%

c. (Optional) If Third National Bank has a 6-year CD at 4.5% interest compounded

monthly, use the compound interest formula to find the compound amount of this offer.

Number of years =

Principal =

Periods per year =

Nominal rate =

Interest rate per period =

Compounding periods =

Amount =