Certificate of deposit at a bank

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Reference no: EM131012717

You purchase a $5,000 certificate of deposit* (CD) at a bank. The terms of the CD provide that if you do not withdrawal your funds for three years, you will receive 4.00% interest, compounding quarterly. If you leave your funds in the bank for all three years, how much will you have at the end of the CD period?

*Purchasing a certificate of deposit is akin to making a loan to the bank, wherein you agree to give the bank the funds at the beginning of the CD term, and not require that bank repay the “loan” until the end of the CD term.

What is your effective annual yield on the CD described in Problem 1?

Reference no: EM131012717

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