Question

Katherine invests $7,770 in a six-month money market account giving 5.8% simple annual interest and $12,500 in a three-year CD giving 7.25% simple annual interest. Assuming that Katherine does not reinvest or renew these investments, how much money will she have when both investments reach maturity, to the nearest dollar?
a.
$2,944
b.
$15,219
c.
$23,214
d.
$30,886

Answer 1

Compute each maturity amount using simple interest A = P(1 + rt).

1) $7,770 at 5.8% for 0.5 year:
A1 = 7770(1 + 0.058·0.5) = 7770(1 + 0.029) = 7770(1.029) = 7,995.33 ≈ $7,995.

2) $12,500 at 7.25% for 3 years:
A2 = 12500(1 + 0.0725·3) = 12500(1 + 0.2175) = 12500(1.2175) = 15,218.75 ≈ $15,219.

Total ≈ 7,995.33 + 15,218.75 = 23,214.08 ≈ $23,214.

Answer: c. $23,214.