Question

A credit union pays 5% annual interest, compounded daily, on savings deposits. Find the value after one year of $500 deposited in this account.
$525.64

$25.64

$20.40

$520.40

Answer 1

Step-by-step answer:

Given:

5% annual interest (APR)

compounded daily

Principal = 500

Solution:

Since it is compounded daily, we first calculate the

daily rate =  5% / 365 = 0.05/365

After one year,

future value

= 500 ( 1 + 0.05/365)^365

= 525.634 (to the tenth of a cent)

note: sometimes a year is considered to be rounded to 360 days, or 366 days for a leap year, but there is practically no difference in the results for this problem.