Question

An investor makes a 8 year deposit of $6,644. The bank is paying an interest rate of 5% per year, compounding half yearly.Calculate "i" (interest rate per period) correct to 2 decimal places (as %) Please do not enter % into your answer box

Answer 1

The interest rate per period (i), with an annual interest rate of 5% compounded half yearly, is 2.50.

Step-by-step explanation:

To calculate the compound interest rate per period (denoted as 'i') for an account where the interest is compounded half yearly, we need to divide the annual interest rate by the number of times interest is compounded per year. In this case, the bank is compounding interest half yearly which means interest is compounded twice a year. The annual interest rate given is 5%. Therefore, we calculate 'i' as follows:

i = Annual Interest Rate / Number of compounding periods per year

i = 5% / 2 = 2.5%

The interest rate per period, 'i', is 2.50, which is the final answer. This calculation is crucial because it defines the actual rate applied to the deposit each compounding period, which eventually impacts the final amount after 8 years.