jmc

Question

Dr. Zaius invests 10,000 in a CD with an annual interest rate of 4% that compounds semi-annually (twice a year). After six months, he rolls over the CD into another CD with an annual interest rate of 5%$ that also compounds semi-annually. After six months in the second CD, how much does Dr. Zaius have, in dollars?

Accepted Answer

The first CD compounds at a rate of 4/2 = 2 percent for the first six months, so Dr. Zaius has 10000 1.02 = 10200 dollars. The second CD compounds at a rate of 5/2 = 2.5 percent for the next six months, so Dr. Zaius then has 10200 1.025 = 10455 dollars.