Question

to make CDs look more attractive as an investment than they really are some banks advertised that the rates are higher than their competitors rates however the fine print says that the rate is based on simple interest if you were to deposit 18,000 at 15% a year into a simple interest CD what compound interest would yield the same amount of money in 3 years

Answer 1

The formula for calculating the future worth is as follows:

Here,

P is principal amount,

n is number of years, and

i is annual rate of interest.

The standard notation equation is where the value of the factor is seen in the compound interest factor table.

Calculate the future worth using simple interest as follows:

Calculate the equivalent interest rate if compound interest is taken, as follows:

Thus, the equivalent interest rate if compound interest is taken is