Certificates of Deposit CD’s Investments Lesson 12.1 Certificates of Deposit CD’s

Vocabulary Invest- To commit money in order to earn a financial return. Earn interest Certificate of Deposit (CD)- A kind of savings account that requires a specific amount deposited for a specific period of time. It usually earns a higher interest rate that a regular savings account. Interest is usually compounded daily, monthly or quarterly You can be penalized for early withdrawal Maturity- The specific amount of time when you can “cash-in” to get the full value of the CD. Principal + Interest

To invest in CD’s, you start with one relatively large deposit. What are some situations that you might have a large sum of money that you do not currently need to use? Tax return Bonus from work Graduation Inherence Sell of property Gift (marriage, holiday,..) Legal settlement Lottery/winnings Overtime earnings Vacation pay Profit from other investments

Formulas Amount = Original Principal X Amount of $1.00 (refer to table A14) Compound Interest = Amount – Original Principal Compound Interest Formula from Ch. 5 page 229 𝐴=𝑃 1.00+𝑟 𝑛 𝐴=𝑉𝑎𝑙𝑢𝑒 𝑎𝑛𝑑 𝑃=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑛=#𝑦𝑒𝑎𝑟𝑠×𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

Find the amount of the CD in 4-years A.J. deposits $50,000 in a 4-year CD that earns interest at an annual rate of 5.25% compounded daily. Find the amount of the CD in 4-years Amount = Original Principal X Amount of $1.00 Amount = (50,000) (1.233659) Amount = $61682.95 Find the interest earned in 4-years Compound Interest = Amount – Original Principal Compound Interest = 61682.95– 50,000 Compound Interest =$11682.95

11972.04 – 11968.14=$3.90 What is the amount of each CD at maturity? Clayton and Madison can purchase a 4-year CD for $10,000 at 4.5% compounded daily or monthly. What is the amount of each CD at maturity? Amt Daily=(10,000)(1.197204) Amt Month=(10,000)(1.196814) Amt Daily= $11972.04 Amt Month= $11968.14 What is the difference in the interest earned? 11972.04 – 11968.14=$3.90

𝐴=𝑉𝑎𝑙𝑢𝑒 𝑎𝑛𝑑 𝑃=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5.22% compounded monthly. Find the value of the CD at maturity and interest he earned. Since 5.22% and 5-year is not on our table, we are going to have to use the formula from Ch. 5. 𝐴=𝑃 1.00+𝑟 𝑛 𝐴=𝑉𝑎𝑙𝑢𝑒 𝑎𝑛𝑑 𝑃=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑛=#𝑦𝑒𝑎𝑟𝑠×𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5 Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5.22% compounded monthly. Find the value of the CD at maturity and interest he earned. 𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑛=#𝑦𝑒𝑎𝑟𝑠×𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑟= .0522 12 𝑛=5×12 𝑟=0.00435 𝑛=60

Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5 Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5.22% compounded monthly. Find the value of the CD at maturity and interest he earned. 𝐴=𝑃 1.00+𝑟 𝑛 𝑃=5,000 𝑟=0.00435 𝑛=60 𝐴=5000 1.00+0.00435 60 𝐴=$6,487.47 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡=6,487.47−5,000 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡=$1,487.47

Any Questions?