1. Jamal bought a $5,000 CD that pays 3.5 percent interest and matures in two years. During the
second year he will earn interest on the principal and the first year's interest. How much
interest will he earn in year two?

Hey there!

He earns $181.13 of interest in year two.

First off, let's make sure that we know the kind of interest we are going to be using. Since it says that during the second year he will earn interest on the principal and the first year's interest, this is compound interest.

Anyways, let's get started with finding the interest for the first year.

3.5% in decimal form is equal to 0.035. When converting a percent to a decimal, move the decimal 2 places to the left. When converting a decimal to a percent, move the decimal 2 places to the right.

After 1 year, it will be worth 100% + 3.5% of its price originally. We could say it'll be worth (1 + 0.035) times it was worth originally. So, we can multiply the principal by (1 + 0.035). Just to make this clearer, add those together. We can then multiply the principal by 1.035.

5,000 x 1.035 = 5175

This is the total amount it is worth after one year.

Note that the question is not asking what the value is after two years, but the interest earned in year two.

This means we are only interested in finding 0.035 of the value after one year, since that is the interest earned.

5175 x 0.035 = 181.125

Let's round that to the nearest hundredth. Since the thousandths value is 5, we round up to 181.13.

The amount of interest he earns in year two is $181.13.

Hope this helps!