Question

You deposit $300 in a savings account that pays 6% interest compounded semiannually. How much will you have at the middle of the first year? How much at the end of one year?

Answer 1

Answer:

• The total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 0.5 years is $ 309.00.

• The total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 1 year is $ 318.27.

Step-by-step explanation:

a)  How much will you have at the middle of the first year?

Using the formula

$A\:=\:P\left(1+\frac{r}{n}\right)^{nt}$

where

• Principle = P

• Annual rate = r

• Compound = n

• Time  = (t in years)

• A = Total amount

Given:

Principle P = $300

Annual rate r = 6% = 0.06 per year

Compound n = Semi-Annually = 2

Time (t in years) = 0.5 years

To determine:

Total amount = A = ?

Using the formula

$A\:=\:P\left(1+\frac{r}{n}\right)^{nt}$

substituting the values

$A=300\left(1+\frac{0.06}{2}\right)^{\left(2\right)\left(0.5\right)}$

$A=300\cdot \frac{2.06}{2}$

$A=\frac{618}{2}$

$A=309$ $

Therefore, the total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 0.5 years is $ 309.00.

Part b) How much at the end of one year?

Using the formula

$A\:=\:P\left(1+\frac{r}{n}\right)^{nt}$

where

• Principle = P

• Annual rate = r

• Compound = n

• Time  = (t in years)

• A = Total amount

Given:

Principle P = $300

Annual rate r = 6% = 0.06 per year

Compound n = Semi-Annually = 2

Time (t in years) = 1 years

To determine:

Total amount = A = ?

so using the formula

$A\:=\:P\left(1+\frac{r}{n}\right)^{nt}$

so substituting the values

$A\:=\:300\left(1+\frac{0.06}{2}\right)^{\left(2\right)\left(1\right)}$

$A=300\cdot \frac{2.06^2}{2^2}$

$A=318.27$ $

Therefore, the total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 1 year is $ 318.27.