michael has been saving his money and wants to invest it. after doing some research, he has decided to…

michael has been saving his money and wants to invest it. after doing some research, he has decided to invest $20,000 into a certificate of deposit. the interest rate on the cd is 3% with a term of five years, and the interest is paid out annually. based on recent inflation, michael is planning on an annual inflation rate of 2%. how much interest will michael earn on this cd in the first year, based on the nominal interest rate? $400 $600 $800 $1,000

michael has been saving his money and wants to invest it. after doing some research, he has decided to invest $20,000 into a certificate of deposit. the interest rate on the cd is 3% with a term of five years, and the interest is paid out annually. based on recent inflation, michael is planning on an annual inflation rate of 2%. how much interest will michael earn on this cd in the first year, based on the nominal interest rate? $400 $600 $800 $1,000

Answer

Explanation:

Step1: Identify the formula for simple - interest

The formula for simple interest is $I = Prt$, where $P$ is the principal amount, $r$ is the annual interest rate (in decimal form), and $t$ is the time in years.

Step2: Convert the interest rate to decimal

The nominal interest rate $r = 3%=0.03$. The principal amount $P=$20000$ and $t = 1$ year.

Step3: Calculate the interest

Substitute the values into the formula: $I=Prt=20000\times0.03\times1$. $I = 600$.

Answer:

$600$ (corresponding to the option: $$600$)