Problema Solution
Steve’s savings account has a balance of $1287. After 4 years, what will the amount of interest be at 6% compounded semiannually?
Answer provided by our tutors
P = $1,287 the principal
r = 0.06 or 6% annual interest rate
m = 2 compounding period per year (compounded semiannually)
i = r/m = 0.06/2 = 0.03 interest rate per period
t = 4 years
n = t*m = 4*2 = 8 total number of compounding periods
A = the future value (the amount in the account after 4 years)
A = P(1 + i)^n
A = 2187(1 + 0.03)^8
........
........
A = $2,770.43
The interest is I = A - P:
I = $2,770.43 - $1,287
I = $1,483.43