Problem: Envision you have served as a business manager for over 2 years.
You have noticed that for the last 12 months the business has regularly had cash assets of $20,000 or more at the end of each month. You have found a 6 month-certificate of deposit that pays 6% compounded monthly. To obtain this rate of interest, you must invest a minimum of $2,000. You also found a high interest savings account that pays 3% compounded daily. Based on the cash position of the business at this time, assume that you decide to invest $4,000.
1. Assume that you will invest the full amount in a certificate of deposit.
a. What would be the future value of the CD at the end of the investment term?
b. How much interest would the investment earn for the period?
c. What would be the effective rate of the investment?