Find the interest for a three-year CD for $5,000 at an interest rate of 2.5%, compounded annually.

To find the interest earned on a Certificate of Deposit (CD) with compound interest, we use the compound interest formula:

\[
A = P \left(1 + \frac{r}{n}\right)^{nt}
\]

Where:
- $ A $ = the amount of money accumulated after interest
- $ P $ = the principal amount (initial investment)
- $ r $ = annual interest rate (as a decimal)
- $ n $ = number of times the interest is compounded per year
- $ t $ = the number of years the money is invested

Given:
- Principal ($ P $) = $5,000
- Annual interest rate ($ r $) = 2.5% = 0.025
- Compounded annually ($ n $) = 1
- Time ($ t $) = 3 years

Now, let's calculate the amount $ A $ and then find the interest earned. The interest earned will be $ A - P $.

\[
A = 5000 \left(1 + \frac{0.025}{1}\right)^{1 \times 3}
\]

Let me calculate that for you.The amount accumulated after 3 years is approximately $5,384.45. 

The interest earned over the 3-year period is approximately **$384.45**.

Would you like more details or have any questions about this calculation? Here are 5 related questions to expand on this topic:

1. How would the interest change if it were compounded quarterly instead of annually?
2. What would the total amount be if the investment was for 5 years instead of 3?
3. How does the compound interest formula compare to simple interest for the same investment?
4. What happens if the interest rate increases to 3%? How much would be earned then?
5. How would the interest change if the investment was compounded monthly?

**Tip:** The more frequently interest is compounded, the more interest you'll earn due to the effects of compounding.

Find out how to calculate the compound interest for a 3-year $5,000 CD with an interest rate of 2.5% compounded annually. This step-by-step solution explains the formula and shows how much interest is earned over time.

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