You put $100 in a bank for a fixed two year term.The interest rate on the loan is 8% per annum,compounded semi-annually.Because the term is fixed,you are not allowed to withdraw interest at any point.What is the total amount of interest earned in the final half-year of the term?
A) $4.00
B) $4.50
C) $4.67
D) $4.16
E) $4.33

Question

Quizplus · Accepted Answer

Step 1 - Calculate the future value of the last two periods.
FV = PV × 11ea7fdb_fc28_a95c_a768_13b606dbc1ab_TB2902_00 FV = 100 × (1.04 11ea7fdb_fc28_d06d_a768_0705771805a9_TB2902_00 = $116.99
Using a financial calculator:
N = 4, I/Y = 4, PV = -100, PMT = 0, cpt FV = $116.99
FV = 100 × (1.04 11ea7fdb_fc28_d06e_a768_4f044b9354c8_TB2902_00 = $112.49
Using a financial calculator:
N = 3, I/Y = 4, PV = -100, PMT = 0, cpt FV = $112.49
Step 2 - Take the difference between the future values to find how much interest was earned in the last period.
116.99 - 112.49 = $4.50

You Put $100 in a Bank for a Fixed Two