Question

In: Finance

If interest is paid twice a year, which method of interest calculation would provide a greater...

If interest is paid twice a year, which method of interest calculation would provide a greater amount?

A. Simple

B. Compounded

C. they would be the same

Solutions

Expert Solution

Ans B. Compounded

If interest is paid twice a year, Compounded interest calculation would provide a greater amount.

FV = Future Value
PV = Present Value
r = rate of interest
n= no of period
COMPOUND INTEREST
FV = PV (1 + r )^n
FV = 1000*(1+5%/2)^2
FV = 1050.63
SIMPLE INTEREST
FV = PV + PV * Rate * Time
FV = 1000 + 1000 * 5%*1
FV = 1050.00

jeff jeffy answered 3 years ago
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