1. Certificates of Deposit CD’s
Investments Lesson 12.1
Certificates of Deposit
CD’s

2. Vocabulary
Invest- To commit money in order to earn a financial return. Earn interest
Certificate of Deposit (CD)- A kind of savings account that requires a specific amount deposited for a specific period of time. It usually earns a higher interest rate that a regular savings account.
Interest is usually compounded daily, monthly or quarterly
You can be penalized for early withdrawal
Maturity- The specific amount of time when you can “cash-in” to get the full value of the CD.
Principal + Interest

3. To invest in CD’s, you start with one relatively large deposit.
What are some situations that you might have a large sum of money that you do not currently need to use?
Tax return
Bonus from work
Graduation
Inherence
Sell of property
Gift (marriage, holiday,..)
Legal settlement
Lottery/winnings
Overtime earnings
Vacation pay
Profit from other investments

4. Formulas
Amount = Original Principal X Amount of $1.00 (refer to table A14) Compound Interest = Amount – Original Principal Compound Interest Formula from Ch. 5 page 229 𝐴=𝑃 1.00+𝑟 𝑛 𝐴=𝑉𝑎𝑙𝑢𝑒 𝑎𝑛𝑑 𝑃=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑛=#𝑦𝑒𝑎𝑟𝑠×𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

5. Find the amount of the CD in 4-years
A.J. deposits $50,000 in a 4-year CD that earns interest at an annual rate of 5.25% compounded daily.
Find the amount of the CD in 4-years
Amount = Original Principal X Amount of $1.00
Amount = (50,000) ( )
Amount = $
Find the interest earned in 4-years
Compound Interest = Amount – Original Principal
Compound Interest = – 50,000
Compound Interest =$

6. 11972.04 – 11968.14=$3.90 What is the amount of each CD at maturity?
Clayton and Madison can purchase a 4-year CD for $10,000 at 4.5% compounded daily or monthly.
What is the amount of each CD at maturity?
Amt Daily=(10,000)( ) Amt Month=(10,000)( )
Amt Daily= $ Amt Month= $
What is the difference in the interest earned?
– =$3.90

7. 𝐴=𝑉𝑎𝑙𝑢𝑒 𝑎𝑛𝑑 𝑃=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5.22% compounded monthly. Find the value of the CD at maturity and interest he earned.
Since 5.22% and 5-year is not on our table, we are going to have to use the formula from Ch. 5.
𝐴=𝑃 𝑟 𝑛
𝐴=𝑉𝑎𝑙𝑢𝑒 𝑎𝑛𝑑 𝑃=𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙
𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑛=#𝑦𝑒𝑎𝑟𝑠×𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

8. Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5
Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5.22% compounded monthly. Find the value of the CD at maturity and interest he earned.
𝑟= %𝑟𝑎𝑡𝑒 𝑖𝑛 𝑑𝑒𝑐𝑖𝑚𝑎𝑙 𝑓𝑜𝑟𝑚 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑛=#𝑦𝑒𝑎𝑟𝑠×𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 𝑟= 𝑛=5×12 𝑟= 𝑛=60

9. Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5
Cody Deposits $5,000 in Beacon Credit Union’s 5-year CD, which pays 5.22% compounded monthly. Find the value of the CD at maturity and interest he earned.
𝐴=𝑃 𝑟 𝑛
𝑃=5, 𝑟= 𝑛=60 𝐴=
𝐴=$6,487.47
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡=6,487.47−5,000
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡=$1,487.47

10. Any Questions?