Question

Assume Marigold Corp. deposits $90000 with First National Bank in an account earning interest at 4% per annum, compounded semi-annually. How much will Marigold have in the account after three years if interest is reinvested?
a) $101354
b) $100800.
c) $90000.
d) $101238

Answer 1

Answer:

a) $101354

Explanation:

To calculate the future balance of the interest-earning account use following formula

FV =  PV x ( 1 + r )^n

Where

FV = Future value = Balance of Interest-earning account after 3 years = ?

PV = present value = Amounr deposited in the account = $90,000

r = Periodic interest rate = 4% x 6/12 = 2%

n = Numbers of periods = Numbers of years x Compounding periods per year = 3 years  x 2 periods per year = 6 periods

Placing values in the formula

FV =  $90,000 x ( 1 + 2% )^6

FV = $101,354