You put $1,000 into a savings account today that offers a 5% APR with semi-annual compounding (i.e., two times per year). What is the effective annual rate of the saving account?
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Given:
The amount of savings put into savings account = $1000
The rate of interest = 5% p.a. with semi-annual compounding
To find:
Money that I will have in my account after 2 years
Formula Used:
When the interest is compounded semi-annually i.e., half-yearly:
Amount, A = P[1 + 2√(2n) 100
Solution:
We will substitute the given values in the formula of the compound interest to find the amount after a period of 2 years,
A = 1000 [1](2*2)
A = 1000 [1 + 100.
A = 1000 [1 +
A = 1000 40
A = 1000 41 41 * * 44 * 40
A= $ 1103.81
Thus, I will have $ 1103.81 in my account after 2 years.
Explanation:
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