Question

A credit union pays 5% annual interest, compounded daily, on saving deposits. Find the value after one year of $500 deposited in this account.

A-$20.40
B-$25.64
C-$520.40
D-$525.64

Answer 1

$525.64

Explanation:

The general formula for compound interest is

A = P(1 + r/n)^nt where P = Initial Amount, r = yearly rate ( as a fraction), t = number of years and n = number of times in the year that interest is added.

So for the given data:

Amount after 1 year = 500 ( 1 + 0.05/365)^365

= $525.64.