Future Business Leaders of America (FBLA) Business Calculations Practice Test

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Dive into the FBLA Business Calculations Test. Sharpen your analytical skills with multiple-choice questions and gain insights with detailed explanations. Excel in your exams!

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A $1,000 CD earns 3% interest with an annual service charge fee of $2. What's the yield?

2.8%
30%
3.0%
28%

The correct answer is: 2.8%

To determine the yield of a Certificate of Deposit (CD), you'll want to consider the interest earned and any service charges associated with it. In this particular scenario, the CD amount is $1,000, and it earns interest at a rate of 3%. To calculate the interest earned in one year, you multiply the principal amount by the interest rate: Interest earned = $1,000 × 0.03 = $30. However, there is an annual service charge fee of $2 that needs to be deducted from the interest earned to calculate the yield effectively. Therefore, the net earnings after accounting for the fee would be: Net earnings = Interest earned - Service charge = $30 - $2 = $28. Now, to find the yield, which reflects the net earnings as a percentage of the principal amount, you would use the following formula: Yield = (Net earnings / Principal) × 100. Yield = ($28 / $1,000) × 100 = 2.8%. This calculation shows that the yield on the CD, after accounting for the service charge, is 2.8%. This is the correct choice as it accurately represents the effective return on investment considering the fees involved.