Question

Chi Tang, a business person from Taiwan, deposits 25,000 yuan in a mutual fund with bonds managed by Bank of America that is expected to pay 6% compounded semiannually. Find the interest after 4 years

Answer 1

The simple interest is caculated using the formula

`\begin{gathered} \text{Interest}=\text{Amount}-\text{ Principal} \\ \text{Where } \\ \text{ Principla=initial payment } \\ \text{Amount = future value } \end{gathered}`

From the question, we have

`\begin{gathered} P=25,000 \\ \text{rate r=6\%=0.06} \\ \text{time t=4years} \\ n=\text{ number of years=2 compounded semiannually} \end{gathered}`

Using the formula

`A=P(1+(r)/(n))^(nt)`

Substitute the value into the formula, we have

`\begin{gathered} A=25,000(1+(0.06)/(2))^(2*4) \\ \text{Then} \\ A=25,000(1+0.03)^8 \\ A=25,000(1.03)^8 \\ A=25,000*1.2668=31\text{ 669.252} \end{gathered}`

Hence

Amount = 31, 669.25203

Then the interest becomes

`\text{ Interest=31 669.25203-25 000=6 669.2520}`

Hence

The interest after four years will be 6, 669.25