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20 September, 12:24

Gabriel put $6000 in a 2-year CD paying 4% interest, compounded monthly. After 2 years, he withdrew all his money. What was the amount of the withdrawal?

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  1. 20 September, 12:33
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    First, we calculate for the effective annual interest given the interest in the scenario.

    ieff = (1 + i/m) ^m - 1

    Substituting the values,

    ieff = (1 + 0.04/12) ^12 - 1 = 0.0407

    The effective interest is equal to 4.07%.

    The future amount after 2 years,

    F = ($6000) x (1.0407) ^2 = $6498.86
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