1. CDs and Annual Yield
Lesson 25

2. Certificates of Deposit

3. A certificate of deposit (CD) is a way to invest money
A certificate of deposit (CD) is a way to invest money. It earns more interest than a savings account.

4. Figure out the amount of the CD…
Original Principal
Amount
* per $1
Amount =
Figure out the interest earned on the CD…
Interest Earned
Original Principal =
Amount -

5. = $5,308.39 = $308.39 Amount = Original Principal x Amt. per $1
You invest $5000 in a 1 year CD. It earns an annual interest rate of 6% compounded monthly.
Find the amount.
Find the interest earned after 1 year.
Amount =
Original Principal x Amt. per $1
= 5,000( )
= $5,308.39
Interest=
Amount – Original Principal
= 5, – 5,000
= $308.39

6. You invest $3000 in a 1 year CD. It earns an annual interest rate of 7
Find the interest compounded quarterly.
Find the interest compounded daily.
Find the difference
Amount
= 3,000( )
= $3,231.41
Interest
= 3, – 3,000
= $231.41
Amount
= 3,000( )
= $3,233.63
Interest
= 3, – 3,000
= $233.63
Difference
= –
= $2.22

7. Effective Annual Yield
Section 25b

8. Annual yield is used for simple interest.
The annual yield is the rate at which your money earns simple interest in one year.
Annual yield is used for simple interest.
Effective annual yield is used in compound interest.

9. Figure out effective Annual yield…
Interest for 1 year
Principal

10. You invest $4000 in a 3 year CD. It earns an annual interest rate of 5% compounded monthly.
Find the interest for 1 year.
Find the effective annual yield.
Amount
= 4,000( )
= $4,204.65
Interest
= 4, – 4,000
= $204.65
= ,000
E.A.Y.
= %

11. 6% Quarterly is better. = $8,473.44 = $473.44 = 473.44 8,000 = 5.918%
You invest $8000 in a 4 year CD.
Effective annual yield at 5.75% compounded daily.
Effective annual yield at 6% compounded quarterly.
Find the better investment.
Amount
= 8,000( )
= $8,473.44
Interest
= 8, – 8,000
= $473.44
= ,000
E.A.Y.
= 5.918%
Amount
= 8,000( )
= $8,490.91
Interest
= 8, – 8,000
= $490.91
= ,000
E.A.Y.
= %
6% Quarterly is better.

12. 25: CDs and Annual Yield Questions Summarize your notes Homework
Worksheet