Bill Casler bought a $3000, 9-month certificate of deposit (CD) that would earn

Question

Bill Casler bought a $3000, 9-month certificate of deposit (CD) that would earn 8% annual simple interest. Three months before the CD was due to mature, Bill needed his CD money, so a friend agreed to lend him money and receive the value of the CD when it matured.

a) What is the value of the CD when it matured?

c) If their agreement allowed the friend to earn a 10% annual simple interest return on his loan to Bill, how much did Bill receive from his friend? (Round your answer to the nearest cent.)

Explanation / Answer

9 months = 0.75 yr.
I = PRT = ($3000)(0.08)(0.75) = $180.
Add this to the principal value: $3000 + $180 = $3180

If the friend of Bill has to earn 10% a year, he has to get 10/4 % in 3 months.

Hence Bill shall receive

$3180/(1 + 10/4 % ) =3102.439

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