Solve the problem. When needed, use 365 days per year and 30 days per month.
-An initial investment of $1000 is appreciated for 5 years in an account that earns 12% interest, compounded semiannually. Find the amount of money in the account at the end of the period.
A) $1762.34
B) $790.85
C) $1689.48
D) $1790.85

Question

Quizplus · Accepted Answer

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. Here, P = $1000, r = 12% or 0.12, n = 2 (since the interest is compounded semiannually), and t = 5 years. Plugging these values into the formula gives A = 1000(1 + 0.12/2)^(2*5) = 1000(1 + 0.06)^10 ≈ $1790.85.

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