If you invest $20,000 in a certificate of deposit (CD) that pays 3% interest compounded quarterly, what will be the total amount of interest earned at the end of one year? Formula for compound interest: A=P(1+(r)/(n))^nt where: •A is the amount of money accumulated after n periods, including interest •P is the principal amount •r is the annual interest rate •n is the number of times interest is compounded per year (4 for quarterly) •t is the time the money is invested
Use the compound-interest formula with P = $20,000, r = 0.03, n = 4, and t = 1. The interest earned is $20,000(1 + 0.03/4)^4 − $20,000 ≈ $606.78, which rounds to $607. So the correct choice is $607.
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