Question

You deposit $1500 in an account that pays 7% annual interest. Find the balance after 2 years when the interest is compounded daily.

Answer 1

$1,725.39

Explanation:

-Take 1 year =365 days.

#We calculate the effective interest rate for 7% compounded daily;

`i_m=(1+i/m)^m-1\\\\=(1+0.07/365)^(365)-1\\\\=0.072501`

#We now use this rate to calculate the compounded amount after two years:

`A=P(1+i_m)^n\\\\=1500(1.072501)^2\\\\=1725.39`

Hence, the balance after 2 years $1,725.39