Walkabout wrote:
Leona bought a 1-year, $10,000 certificate of deposit that paid interest at an annual rate of 8 percent compounded semiannually. What was the total amount of interest paid on this certificate at maturity?
(A) $10,464
(B) $ 864
(C) $ 816
(D) $ 800
(E) $ 480
Approach #1:8 percent compounded semiannually --> 4% in 6 moths.
For the first 6 moths interest was 4% of $10,000, so $400;
For the next 6 moths interest was 4% of $10,000, plus 4% earned on previous interest of $400, so $400+$16=$416;
Total interest for 1 year was $400+$416=$816.
Answer: C.
Approach #2:If the interest were compounded
annually instead of
semiannually then in a year the interest would be 8% of $10,000, so $800. Now, since the interest is compounded semiannually then there would be interest earned on interest (very small amount) thus the actual interest should be a little bit more than $800, only answer choice C fits.
Answer: C.
Similar questions to practice:
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math-number-theory-percents-91708.htmlHope it helps.
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