Question

A $6,000.00 principal earns 8% annual interest, compounded semiannually (twice per year). After 35 years, what is the balance in the account?
I know the answer is $93,429.71 but can someone show me how to do it
step-by-step?

Answer 1

Hello Astrid,

To solve this problem, you need to use the compound interest formula.

I have it written out below, then I can explain.

6000(1 + 0.08/2)^(35 x 2)

We are starting with 6000 and multiplying 1 and an additional 8% (0.08). However, since the interest is given twice a year, we divide the 0.08 by 2. 
Then, we would raise it to the 35th power because we are compounding it for 35 years. However, it happens twice a year, so we multiply the 35 by 2, for a total of 70.

This will produce the answer you found.

I hope this helps, Good luck!