In general, how does the interest rate on a certificate of deposit relate to maturity and investment amount?

The correct answer reflects the relationship between the maturity length and the investment amount in determining the interest rate on a certificate of deposit (CD). Generally, CDs are structured such that longer maturities typically come with higher interest rates. This is because financial institutions are willing to offer more attractive rates to encourage investors to lock their funds away for a longer period of time—essentially compensating them for committing their money for an extended timeframe.

Additionally, larger investment amounts can also lead to higher interest rates. Financial institutions often promote larger deposits with better rates as a means to attract more significant funds. This is a strategy to incentivize savers to choose CDs over other savings options, leveraging both the time commitment and the amount deposited to offer more competitive interest rates.

The relationship described in the correct choice underscores a common practice in banking, where both maturity duration and investment size can influence the returns offered to savers. This dynamic allows the bank to manage its liquidity more effectively while providing customers with the opportunity to earn more interest based on their investment decisions.