Certificates of Deposit and Effective Annual Yield Your money earns interest at a higher rate when you buy a certificate of deposit than it does when you invest it in a regular savings account. Most certificates eam interest compounded daily. The annual yield is the rate at which your money earns simple interest in one year. INTEREST EARNED - AMOUNT - ORIGINAL PRINCIPAL INTEREST FOR ONE YEAR PRINCIPAL ANNUAL YIELD - Use the table below to answer the problems. AMOUNT PER $1.00 INVESTED, DAILY COMPOUNDING Annual Interest Period Rate 3 Months One Year 2.5 Years 4 Years 6 Years 5.75% 1.014278 1.059180 1.154458 1.258577 1.411952 6.00% 1.014903 1.061831 1.161820 1.271224 1.433257 6.25% 1.015529 1.084489 1.169103 1.283998 1.454945 6.50% 1.016155 1.067153 1.176431 1.290900 1.478930 6.75% 1.016782 1.009824 1.163806 1.309932 1.499.246 7.00% 1.017408 1.072501 1.191226 1.323094 1.521900 7.25% 1.018036 1.075185 1.198093 1.336389 1.544890 7.50% 1.018663 1.077876 1.206207 1.349817 1.568240 7.75% 1.019291 1.030573 1.213768 1.363330 1.591936 8.00% 1.019920 1.083278 1.221378 1.377079 1.615989 & Years 1.584017 1.616011 1.640651 1.681950 1.715921 1.750579 1.785838 1.822000 1.858306 1.896348 1. Alicia Cox purchased a 21-year certificate of deposit for $15,000. The certificate carns interest at a rate of 7.00% compounded daily. a. What is the amount of the certificate at maturity? b. What is the interest earned? 2. Charles Demaire purchased an 8-year certifionte of deposit for $45.000. The certificate carns interest at 8% compounded daily. a. What is the certificate worth in 8 years! b. What has the certificate eared in those 8 years! 3. The Trues have $30,000 they want to invest in a certificate of deposit. They can purchase a 4-year certificate that earns interest at a rate of 5.75% or a 21-year certificate that earns interest at a rate of 8.00% a. Which certificate offers a higher maturity value? 1. What is the difference in the maturity values of the two certificates 4. What is the annual yield on a 1-year $15.000 certificate of deposit that cams Interest at a rate of 1.50% compounded daily? 5. You Invest $25,000 in an 8-year certificate of deposit that earns interest at 8% compounded daily. What is the annual yield? 6. Most banks pay higher rates of Interest for longer periods of deposit. Why? Unit 1073 City Gene Division