Answer:
Option D
Step-by-step explanation:
To calculate compound interest we will use the formula :
[tex]A=P(1+\frac{r}{n})^{nt}[/tex]
Where,
A = Amount on maturity
P = Principal amount = $3000
r = rate of interest = 8.4% = 0.084
n = number of compounding period = Monthly = 12
t = time = 1 year
Now put the values in the formula.
[tex]A=3000(1+\frac{0.08}{12})^{(12)(1)}[/tex]
= [tex]3000(1+0.007)^{12}[/tex]
= 3000(1.007)¹²
= 3000 × 1.08731066
= 3261.93198 ≈ $3261.93
While the other bank compounds interest daily.
Therefore, n = 365
Now put the values in the formula with n = 365
[tex]=3000(1+\frac{0.084}{365})^{(365)(1)}[/tex]
[tex]=3000(1+0.00023014)^{365}[/tex]
[tex]=3000(1.00023014)^{365}[/tex]
= 3000 × 1.08761958
= 3262.85874 ≈ $3262.86
Difference in the ending balance = 3262.86 - 3261.93
= $0.93
The difference in the ending balances of both CDs after one year would be $0.93.
