Question

3. If you have a bank account with a principal of $1,000 and your bank compounds the interest twice a year at an

interest rate of 5 percent, how much money do you have in your account at the year's end? (Assume that you do not
add or withdraw any money from the account.)

Answer 1

$1,050.625

Step-by-step explanation:

the applicable formula is

A = P x ( 1 + r) ^n

where A= amount after one year

r = interest rate; 5 %

n = number of period

Since interest is compounded twice as year, the applicable interest rate is for 6 months

r =5% /2 = 2.5 % or 0.025

n = i year or 2 periods

A= $1000 x ( 1 + 0.025) ^2

A = $1000 x ( 1.025)^2

A= $1000 x 1.050625

A=$1,050.625

The amount after one year will be $1,050.625