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You open a 5-year CD for $1,000 that pays 2% interest, compounded annually. What is the value of that CD at the end of the five years?

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Chapter 17

Financial Markets

Introduction

How Markets Work

Topics for Further Study

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everyone said they were solving Problem number eight from Chapter 17 of the textbook, which gives us this falling scenario. You open a five year CD for $1000 that pace 2% interest, compounded annually. What is the value of that CD at the end of the five years? So since it tells us that it's compound ID, Um, and there's an interest rate we're dealing with compound interest and to the right right here is our formula for compound interest. So you have a The amount is equal to the principal value given in this particular case, R P value be 1000 because that's the initial amount. And then in promises you have the number one plus arbor and where our is the interest rate. We're told that it's 2% interest rate on is a number of times it's compound ID per year to, since it's calm, pounded annually in this particular problem and would simply be one, um, and then to the end Time sees again that one Antaeus how many years after we're trying to figure out and it tells us what is the value of the CD at the end of five years, so tea would be fine. So just to reiterate, I would have tea equaling five I would have on equaling one is a test. It's compound it annually, so if it's compound in any, that means it's compounded once a year on and then ours my interest rate. So it's gonna be 2%. But remember, we always want to express our in terms of a decimal. So 2% is to over 100. Let's is which is 0.2 and then our principal value p, which is the initial value of like the loan or the CD or whatever it is. And this particular case, we're told it's $1000. So there's all our inspiration, our just gonna plug in and find what it is. So I would have a equals 1000 because member of substituting in all my values that I just figure it out 1000 and then in parentheses. I'm going to put in one plus and then I'm going to have 0.2 my numerator, remember, 2% we're gonna write, there's a decimal. The decimal form of 2% is pointing to, and then my end is going to be simply one. And then I'm going to, um, raised this number to the power of five times one. So sorry, my guy. It should be to the power of one times by. And when I plug this onto my calculator, I should get a final answer. Uh, $1104 and eight cents approximately. So there you have it. If you guys enjoy my video explanation of this problem, please and the like, but next to it, I hope you all have a nice day. And thank you for watching.

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