Question
In: Finance
Mr.D invests $1000 in a bank account. Six months later, the amount in his bank account is $1049.23. Find the amount of interest earned in those six months. Find the (semiannual) effective rate of interest earned in those six months
Mr.D invests $1000 in a bank account. Six months later, the amount in his bank account is $1049.23. Find the amount of interest earned in those six months. Find the (semiannual) effective rate of interest earned in those six months
Solutions
Expert Solution
(a) The amount of interest earned in six months is the amount by which the account has grown. Therefore you can find the total interest as such: Interest=Present Value−Original Investment = $1049.23 − $1000 = $49.23
(b) The semi-annual effective rate is the interest earned as a percent of the original investment. Therefore you can find the semi-annual effective rate as such: rate = Present Value − Original Investment / Original Investment = $49.23 / $1000= 4.923%
a) interest is the amount the account has grown by: $49.23
b) the percentage of the original investment that is interest: 4.923%
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Multiple Choice
$14,940
$6,760
$24,444
$26,760
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