Ira said:
I think my bank has been underpaying me interest on a 5 year certificate of
deposit.
How can I calculate the interest I should be getting on, say, $2,500 for a
five year term at 6.77% and show how much interest accrues at year one, year
two, etc.?
Ike
First, I am assuming CD is calculate using compound interest, not simple
interest.
Here is the simple answer. The formual for compound interest is:
A=(P+R)^n where A=future amount P=original principal R=rate
n=compounding period. eg at year 1 n= and your formula is
(2500*.0677)^1= 2669.25, year 2 = (2669.25*.0677)^2, and so on.
Your answer is:
Year principal rate interest future
earned amount
1 $2,500.00 0.0677 $169.25 $2,669.25
2 $2,669.25 0.0677 $180.71 $2,849.96
3 $2,849.96 0.0677 $192.94 $3,042.90
4 $3,042.90 0.0677 $206.00 $3,248.90
5 $3,248.90 0.0677 $219.95 $3,468.86
if the CD is based on simple interest, you interest is $169.25 each year.