If I put $2,000 in a CD today & the interest rate is 5% compounded quarterly what will it be in 2 years?

Expert Answers
pohnpei397 eNotes educator| Certified Educator

So what you need to do here is to use the formula for compound interest.

That formula can be stated as

M = P(1+i)^n

In this formula, M is the final amount (the thing you are asking about here.  P is the principal -- the original amount you invested.  i is the interest rate and n is the number of compounding periods.

Please be sure to divide your interest rate by 4 before plugging it into the formula (assuming that the 5% is an annual interest rate).

So, in your case, we would have

M = 2000(1+.0125)^8

M = 2000 (1.0125)^8

M = 2000 (1.1044)

M = 2208.8

 

So your CD would be worth $2208.8

 

Jyotsana | Student

M=P(1+i)^n

2,000(1+0.05)^2

$2205