Question

The expression 1,000(1.0175)2+ describes the amount of money in a savings account after years. Complete the statements.

each year.
The Interest rate is compounded_____each year
1- 1 time
2-2 times
3- 4 times
4- 12 times
The annual Interest rate on the account is ____
1- 1.75%
2- 3.50%
3- 3.53%
4- 3.56%

Answer 1

a) 1 time

b) 1.75%

Explanation:

yes

Answer 2

a) 1 time

b) 1.75%

Explanation:

a) The given expression is 1,000(1.0175)^2

Here,

1,000 is the principal (Present Value); (1.0175 = 1 + 0.0175) is the compounding interest rate; and 2 is the number of period (Years).

Since two means 2nd year, therefore, the interest is compounded every year. Hence, it is annual compounding interest.

If the interest rate is compounded annually, the interest will be paid one time each year or period.

b) From part a, if we break the expression,

1,000 is the principal (Present Value); (1.0175 = 1 + 0.0175) is the compounding interest rate; and 2 is the number of period (Years).

Since the interest rate is to be compounded annually, the percentage will not affect.

(1.0175 = 1 + 0.0175) in this expression, one is added to the interest to make the future compounding value.

Therefore, 0.0175 is the interest rate. If we take it to the percentage -

0.0175 x 100 = 1.75%.