Compound Interest Project: Certificate of Deposit and Annuities

This project analyzes compound interest principles through the lens of Certificates of Deposit (CDs) and annuities. The assignment begins with an exploration of CDs, including their benefits and drawbacks, and calculates investment growth rates for various terms, considering potential penalties for early withdrawals. It then delves into personal financial planning, using a hypothetical salary to determine affordable mortgage payments based on the 28% rule. Finally, the project incorporates annuities to project retirement savings based on different starting points and time horizons, using an 8% interest rate to illustrate the impact of time and investment amounts on future wealth. The project emphasizes understanding financial concepts and applying them to real-world scenarios.

Running head: COMPOUND INTEREST PROJECT
Compound Interest Project
Name of the Student:
Name of the University:
Author’s Note:

1COMPOUND INTEREST PROJECT
Table of Contents
Question A.......................................................................................................................................2
Question B.......................................................................................................................................2
Question C.......................................................................................................................................3
Bibliography....................................................................................................................................4

2COMPOUND INTEREST PROJECT
Question A
A certificate of deposit is a certificate that is well issued by a banking institution to an
individual for well depositing a sum of money for a defined period of time at a specified rate of
interest. The key benefits of the Certificate of Deposit are as follows:
 The investment class is considered as an safe source of investment
 The underlying interest rate is either fixed or variable
 It is easy to access and easy to open
The investment category also suffer from some drawbacks which are as follows:
 Low set of Liquidity
 Considerably offers a lower rate of interest rate
However, it is important to note that investment in the Certificate of Deposits should only be
done when we are having a considerable set of money for investment purpose and when we are
well willing to bring stability in the overall investment asset class, as CD on a whole has a
negligible amount of investment risk.
Question B
i) Investment Growth Rates that would be observed across various maturities will be as follows:
Time Period Investment Amt. Interest Rate APY Future Amt
9 Months $ 5,000 1.24% 1.25% $5,046.72
29 Months $ 5,000 0.95% 0.95% $5,116.12
39 Months $ 5,000 0.95% 0.95% $5,156.78

3COMPOUND INTEREST PROJECT
ii) The total amount that would be well earned after accounting for all the penalties and interest
paid on the remaining time period in each of the category are well shown below:
Time
Period
Investme
nt Amt.
Intere
st Rate APY
Future
Amt.
Time
Investe
d
Remainin
g Time
Penalt
y
Net
Future
Amt.
Loss in
Interest
9
Month
s
$
5,000 1.24%
1.25
%
$5,046.7
2
6
Months 3 Months
3
Month
$5,031.1
0 ($15.62)
29
Month
s
$
5,000 0.95%
0.95
%
$5,116.1
2
18
Months
11
Months
12
Month
$5,071.7
6 ($44.36)
39
Month
s
$
5,000 0.95%
0.95
%
$5,156.7
8
24
Months
15
Months
12
Month
$5,095.9
1 ($60.87)
Question C
In the view perspective of investment in the Certificate of Deposits the option that would
be well considered for the purpose of investment would be well dependent on the investment
habit and lifestyle spending activities which are well carried out during the course of time period.
The time period of investment would be for a time a period of years in which the first option that
is investing into the 9 Month Certificate of Deposit would be acting as the key and essential tool
for investment purpose as the same would be allowing the investor to earn an additional amount
of interest earnings and thereby reducing the penalty that is usually charged in the form of
investment considered. Given the time frame of two years well states that the liquidity
requirement is considerably moderate and in order to well honor or fulfil the same we would be
well taking the 9 month Certificate of Deposit. From the view perspective of investment in
Certificate of Deposit the same would be well considered as the investment asset class would be

4COMPOUND INTEREST PROJECT
allowing us earn a consistent and a stable return on the amount invested without incurring any
credit risk or market risk on the same.
Bibliography
Savings Account Rates and CD (Time Account) Rates - Wells Fargo (2020). Available at:
https://www.wellsfargo.com/savings-cds/rates/ (Accessed: 7 March 2020).
Should You Buy Certificates of Deposit or Invest in Money Markets? (2020). Available at:
https://www.thebalance.com/certificates-of-deposit-3305913 (Accessed: 7 March 2020).