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Answer :
To find out how much interest is earned on a CD with a 2-year fixed maturity, we need to use the formula for simple interest. The formula for simple interest is:
[tex]\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \][/tex]
Here's a step-by-step explanation of how we apply this formula to the given situation:
1. Identify the Principal (Initial Investment):
The principal amount, or the initial investment in this case, is [tex]$940.
2. Identify the Annual Interest Rate:
The annual interest rate given is 2.6%. Since the interest rate in the formula needs to be in decimal format, we convert the percentage to a decimal by dividing by 100:
\[ 2.6\% = \frac{2.6}{100} = 0.026 \]
3. Identify the Time Period (in years):
The time period for which the CD is held is 2 years.
4. Plug in the Values to the Simple Interest Formula:
Substitute the known values into the formula:
\[ \text{Interest} = 940 \times 0.026 \times 2 \]
5. Calculate the Interest Earned:
Calculate the interest by performing the multiplication:
\[ \text{Interest} = 940 \times 0.026 \times 2 = 48.88 \]
So, the interest earned on the CD over the 2-year period is $[/tex]48.88.
[tex]\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \][/tex]
Here's a step-by-step explanation of how we apply this formula to the given situation:
1. Identify the Principal (Initial Investment):
The principal amount, or the initial investment in this case, is [tex]$940.
2. Identify the Annual Interest Rate:
The annual interest rate given is 2.6%. Since the interest rate in the formula needs to be in decimal format, we convert the percentage to a decimal by dividing by 100:
\[ 2.6\% = \frac{2.6}{100} = 0.026 \]
3. Identify the Time Period (in years):
The time period for which the CD is held is 2 years.
4. Plug in the Values to the Simple Interest Formula:
Substitute the known values into the formula:
\[ \text{Interest} = 940 \times 0.026 \times 2 \]
5. Calculate the Interest Earned:
Calculate the interest by performing the multiplication:
\[ \text{Interest} = 940 \times 0.026 \times 2 = 48.88 \]
So, the interest earned on the CD over the 2-year period is $[/tex]48.88.
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