Bill Casler bought a $8000, 9-month certificate of deposit (CD) that would earn
ID: 3281993 • Letter: B
Question
Bill Casler bought a $8000, 9-month certificate of deposit (CD) that would earn 8% annual simple interest. Three months before the CD was due to mature, Bill needed his CD money, so a friend agreed to lend him money and receive the value of the CD when it matured. (a) What is the value of the CD when it matures? 8480 (b) If their agreement allowed the friend to earn a 10% annual simple interest return on his loan to Bill, how much did Bill receive from his friend? (Round your answer to the nearest cent.)Explanation / Answer
If the friend of Bill has to earn 10% a year, he has to get 10/4 % in 3 months.
Hence Bill shall receive
$8480/(1 + 10/4 % ) = $8480/(1 + 2.5 % ) = $8480/(1 + 1.025) = $8480/(1.025) = 8273.17
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