How much interest will be earned in one year on a $10,000 investment in a Certificate of Deposit earning 0.25% interest compounded semi-annually?

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Multiple Choice

How much interest will be earned in one year on a $10,000 investment in a Certificate of Deposit earning 0.25% interest compounded semi-annually?

To determine the interest earned on a $10,000 investment in a Certificate of Deposit (CD) earning 0.25% interest compounded semi-annually, it's essential to understand how compound interest works, particularly when compounding occurs more than once a year. First, identify the interest rate per compounding period. Since the interest is compounded semi-annually, the annual interest rate of 0.25% must be divided by 2. This results in a rate of 0.125% for each six-month period. Next, since the investment compounds twice in a year, the interest needs to be calculated for each of these compounding periods. Here's how you can calculate the total interest: 1. For the first six-month period: - Interest = Principal × (Interest Rate per Period) - Interest = $10,000 × 0.00125 (which is 0.125% as a decimal) - Interest = $12.50 2. Add this interest to the principal to find the new balance: - New Balance = $10,000 + $12.50 = $10,012.50 3. For the second six-month period, calculate the interest on the new

To determine the interest earned on a $10,000 investment in a Certificate of Deposit (CD) earning 0.25% interest compounded semi-annually, it's essential to understand how compound interest works, particularly when compounding occurs more than once a year.

First, identify the interest rate per compounding period. Since the interest is compounded semi-annually, the annual interest rate of 0.25% must be divided by 2. This results in a rate of 0.125% for each six-month period.

Next, since the investment compounds twice in a year, the interest needs to be calculated for each of these compounding periods. Here's how you can calculate the total interest:

  1. For the first six-month period:

  • Interest = Principal × (Interest Rate per Period)

  • Interest = $10,000 × 0.00125 (which is 0.125% as a decimal)

  • Interest = $12.50

  1. Add this interest to the principal to find the new balance:
  • New Balance = $10,000 + $12.50 = $10,012.50
  1. For the second six-month period, calculate the interest on the new
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