Question

You placed $6,960 in a savings account today that earns an annual interest rate of 8.48 percent, compounded semiannually. How much will you have in this account at the end of 16 years? Assume that all interest received at the end of the period is reinvested the next period.

Answer 1

Formula for compound interest
		Amount	=	P[1+r/n)^nt
	where
		P=principle=$6960
		r=annual rate=8.48% or 0.0848
		n=No.of times interest is compounded a year= 2 times (1year= 2 half years)
		t=no.of years
	Therefore
		Amount	=	$6960[1+(0.0848/2)]^2*16
			=	$6960[1+.0424]^32
			=	$6960*[1.0424]^32
			=	$6960*3.7764
			=	$ 26,283.74
	In compound interest method,the interest is assumed to reinvested.
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