Question

What is the value of "n" in the equation for compound interest if it is compounded daily and interest has accrued for 2 years? O A. 730 OB. 365 Oc. 2 OD. 8

Answer 1

Solution:           

The formula / equation for calculating the compound Interest on a given amount of investment is :

= [ P * [ ( 1 + (r/n) ) ^{n * t} ] ] - P

Where

P = Principal amount of investment ;   r = rate of interest   ; n = No. of compounding periods per year ; t = Time in years

When the compounding is daily then n = no. of days in a year = 365

Since the compounding is daily, each day of the year is taken as a single compounding period. Thus the no. of compounding periods in a year = 365

Thus the solution is Option B. 365

Since the interest has accrued for 2 years , the value of t =time in years in the equation is equal to 2