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5. Milo Simpson deposited $860 in a new regular savings account that earns 5.5% interest compounded
semiannually for 1 year. Calculate the a) amount and b) the compound interest. (2 points)

Respuesta :

  • First, convert R as a percent to r as a decimal

R = Interest rate

r = 5.5%

r = R/100

r = 5.5/100

r = 0.055 rate per year,

  • a) Solve the amount  (A)

A = P(1 + r/n)nt

where:

A = Amount after interest is compounded

P = Principal = Inital amount deposited = $860

r = Interest rate = 0.055

n = Number of times interest is compounded = Semi annually = 2

t = Time in years = 1 year

A = 860.00(1 + 0.055/2)^(2 x 1)

A = 860.00(1 + 0.0275)^(2)

Amount  = $907.95

  • b) Solve for the compound interest.

Formula = A - P

where:

A = Amount

P = Principal

I = Compound Interest

I = $907.95 - $860

I (Compound interest) = $47.95

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