The National Bank of Mayville quotes an APY of 3.5 percent on a one-year money market CD sold to one of the small businesses in town. The firm posted a balance of $2,500 for the first 90 days of the year, $3,000 over the next 180 days, and $4,500 for the remainder of the year. How much in total

Question

The National Bank of Mayville quotes an APY of 3.5 percent on a one-year money market CD sold to one of the small businesses in town. The firm posted a balance of $2,500 for the first 90 days of the year, $3,000 over the next 180 days, and $4,500 for the remainder of the year. How much in total interest earnings did this small business customer receive for the year?

Accepted Answer

Using the APY formula we can fill in the variables whose values are known and find the unknown interest earnings. Thus:

[latex]A P Y=100\left[\left(1+\frac{ ext { Interest Earnings }}{ ext { Average Balance }} ight)^{365 / 365}-1 ight][/latex]

[latex]3.5 \%=100\left[\left(1+\frac{ ext { Interest Earnings }}{\$ 3267.12} ight)^{365 / 365}-1 ight][/latex]

Where the account's average balance is found from:

[latex] ext { Average Balance }=\frac{[\$ 2500 imes 90 ext { days }+\$ 3000 imes 180 ext { days }+\$ 4500 imes 95 ext { days }]}{365 ext { days }}[/latex]

= $3267.12

Then:

[latex]3.5 \%=100\left(\frac{ ext { Interest Earnings }}{\$ 3267.12} ight)=0.030608 imes ext { InterestEarnings }[/latex]

or Interest Earnings = $114.35

Question 12.P.8: The National Bank of Mayville quotes an APY of 3.5 percent o...

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