A 1500 certificate of deposit held for 75 days was worth 1521.25 . To the nearest tenth of a p

step 1 Okay, so let's use our equation. I is equal to PRT. So we start out with 1 ,500. That's our prin

A 1500 certificate of deposit held for 75 days was worth ...

Key Concepts

Certificate of Deposit

A certificate of deposit (CD) is a savings product offered by banks with a fixed term and a fixed interest rate. CDs typically pay simple interest and have a specific maturity period, during which early withdrawal may incur penalties. Understanding CDs involves knowing how interest is calculated over the term of the deposit and how it compares to other investment options.

Annualization of Interest Rates

Annualization refers to the process of converting an interest rate earned over a short period into an equivalent annual rate. This is done by determining the rate for the fractional period and then scaling it up to a full year. It helps in comparing different investments or loans on a common annual basis.

Simple Interest

Simple interest is calculated using the formula I = P * r * t, where I represents the interest earned, P is the principal amount, r is the annual interest rate expressed as a decimal, and t is the time period expressed in years. This concept is crucial when interest does not compound, making it straightforward to determine the interest earned over a given period.

Time Period as a Fraction of a Year

When calculating interest for a period shorter than one year, the time period must be converted into a fraction of a year. This is typically done by dividing the number of days the money is invested by the total number of days in the year, which in some financial contexts is assumed to be 360 days. This conversion ensures that the interest rate reflects the correct proportion of the annual period.

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