Interest on $2,630 at 3% compounded semiannually for five years is:
A)$304.90
B)$414.49
C)$511.96
D)$422.12
E)None of these

Question

Quizplus · Accepted Answer

We can use the formula A=P(1+r/n)^(nt) where:
A = the amount of money at the end of the investment period
P = the principal (starting amount)
r = the annual interest rate (as a decimal)
n = the number of times per year the interest is compounded
t = the number of years

Plugging in the given values, we get:

A = 2630(1+0.03/2)^(2*5)
A = 2630(1.015)^10
A = 2630(1.162752)
A = $3056.58

To find the interest earned, we subtract the principal from the final amount:

Interest = $3056.58 - $2630
Interest = $426.58

Since the interest is not compounded annually, we cannot simply use the simple interest formula. Therefore, the only answer choice that is close to our calculated interest is option D, $422.12.

Interest on $2,630 at 3% Compounded Semiannually for Five Years