Question

If you have a bank account whose principal = $1000, and your bank compounds the interest twice a year at an interest rate of 5%, how much money do you have in your account at the year's end?

Answer 1

1,050.63

Step-by-step explanation:

The amount in the bank will be the same as the future value of the principal amount at 5% interest. The formula for calculating compound interest is

FV = PV × (1+r)n

where FV = Future Value

PV = Present Value

r = annual interest rate

n = number of periods

In this case, Pv =$1000, r =5%, n =2. since there two periods in the year, the interest rate will be divided by two, 5%/2= 2.5%

FV= 1000 x (1+2.5/100) 2

Fv = 1000 x ( 1 + 0.025)2

fv = 1000 x 1.050625

fv= 1,050.625

The amount will be $ 1,050.625