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You deposit $300 in a savings account that pays 6% interest compounded semiannually. How much will you have at the middle of the first year? How much at the end of one year?

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Answer:

  • The total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 0.5 years is $ 309.00.

  • The total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 1 year is $ 318.27.

Step-by-step explanation:

a)  How much will you have at the middle of the first year?

Using the formula

[tex]A\:=\:P\left(1+\frac{r}{n}\right)^{nt}[/tex]

where

  • Principle = P
  • Annual rate = r
  • Compound = n
  • Time  = (t in years)
  • A = Total amount

Given:

Principle P = $300

Annual rate r = 6% = 0.06 per year

Compound n = Semi-Annually = 2

Time (t in years) = 0.5 years

To determine:

Total amount = A = ?

Using the formula

[tex]A\:=\:P\left(1+\frac{r}{n}\right)^{nt}[/tex]

substituting the values

[tex]A=300\left(1+\frac{0.06}{2}\right)^{\left(2\right)\left(0.5\right)}[/tex]

[tex]A=300\cdot \frac{2.06}{2}[/tex]

[tex]A=\frac{618}{2}[/tex]

[tex]A=309[/tex] $

Therefore, the total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 0.5 years is $ 309.00.

Part b) How much at the end of one year?

Using the formula

[tex]A\:=\:P\left(1+\frac{r}{n}\right)^{nt}[/tex]

where

  • Principle = P
  • Annual rate = r
  • Compound = n
  • Time  = (t in years)
  • A = Total amount

Given:

Principle P = $300

Annual rate r = 6% = 0.06 per year

Compound n = Semi-Annually = 2

Time (t in years) = 1 years

To determine:

Total amount = A = ?

so using the formula

[tex]A\:=\:P\left(1+\frac{r}{n}\right)^{nt}[/tex]

so substituting the values

[tex]A\:=\:300\left(1+\frac{0.06}{2}\right)^{\left(2\right)\left(1\right)}[/tex]

[tex]A=300\cdot \frac{2.06^2}{2^2}[/tex]

[tex]A=318.27[/tex] $

Therefore, the total amount accrued, principal plus interest,  from compound interest on an original principal of  $ 300.00 at a rate of 6% per year  compounded 2 times per year  over 1 year is $ 318.27.

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