Question

Find the principal invested if $800 interest was earned in 8 years at an interest rate of 4%.

Answer 1

Answer:

The usual interpretation of 12.5% compounded binannually would be half the interest rate (6.25%) added every six months.

$100 invested at the start of the year would attract $100 * 0.0625 = $6.25 after 6 months, and that $6.25 would itself attract interest in the second half of the year:

So:

t= 0 months - $100

t = 6 months $(100 * 1.0625) = $106.25

t = 12 months $(106.25 * 1.0625) = $112.89

By contrast, 12.5% compounded annually would give $112.5; 39c less than the bi-annual compounding.

Step-by-step explanation:

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