Suppose you currently have $2,000 and plan to purchase a 3-year certificate of deposit (CD) that pays 4% interest compounded annually. How much will you have when the CD matures? How would your answer change if the interest rate were 5% or 6% or 20%? ($2,249.73; $2,315.25; $2,382.03; $3,456.00. Hint:

With a calculator, enter N = 3, I/YR = 4, PV = −2000, and PMT = 0; then press FV to get 2,249.73. Enter I/YR = 5 to override the 4% and press FV again to get the second answer. In general, you can change one input at a time to see how the output changes.)

AppendixLO1