The amount of money that Alex earn in 2 years will be $424.55.
Compound interest is the interest on a loan or deposit calculated based on the initial principal and the accumulated interest from the previous period.
We know that the compound interest is given as
A = P(1 + r)ⁿ
Where A is the amount, P is the initial amount, r is the rate of interest, and n is the number of years.
Alex invested $400 in a CD that pays 3% simple interest.
Then the principal will be $400 and the interest rate for the semiannual will be
r = 0.03 / 2
r = 0.015
The amount of money that Alex earn in 2 years will be
n = 2 x 2
n = 4
Then the amount will be
A = 400(1 + 0.015)⁴
A = 400(1.015)⁴
A = 400 x 1.0614
A = $ 424.55
The amount of money that Alex earn in 2 years will be $424.55.
More about the compound interest link is given below.
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