First City Bank computes interest semiannually. If the interest rate is currently 6 percent pa, the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?
A) 20 periods at 12 percent
B) 20 periods at 3 percent
C) 10 periods at 6 percent
D) 10 periods at 3 percent

Question

Quizplus · Accepted Answer

Since the interest is compounded semiannually, the annual rate of 6% is divided by 2, resulting in a 3% rate per period. Over 10 years, there are 20 semiannual periods.

First City Bank Computes Interest Semiannually