Answer:
The value of the CD would probably be $3183.62 in three years as shown below.
Explanation:
The formula applicable here is future value ,which means the value of the investment in 3 years at 2% compound interest rate.
The formula is given as:
FV=PV*(1+r)^n
FV is the unknown here
PV is the present value of the amount to be invested which is $3000
r is the rate of return on investment at 2%
n is the time horizon of the investment which is 3 years
FV=$3000*(1+0.02)^3
FV=$3183.62
In other words, by investing in the certificate of deposit, the investor would likely have $3183.62 in three years' time.
The rate on certificate of deposit is usually low because it is one the safest investment vehicle ,hence offers a lower rate of return,that shows clearly the positive relationship between risk and return on investment
