Question

What is the difference in the future value of $100 at 7 percent interest for 5 years if the interest is compounded semiannually rather than annually?

Answer 1

0.80

Step-by-step explanation:

• Compounded interest annually

`I=P[(1+r)^n-1]\\I=100[(1+0.07)^5-1]\\\\I=100[1.40255173-1]\\I=100[.40255173]\\I=40.255173`

• Compounded interest Semiannually

`I=P[(1+r)^n-1]\\I=100[(1+0.035)^(10)-1]\\\\I=100[1.41059876-1]\\I=100[.41059876]\\I=41.059876`

Difference between interest = 41.059876 - 40.255173

Difference between interest = 0.804703