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Interest

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TheRob
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Interest [#permalink] New post   28 Aug 2009, 06:55
00:00
A
B
C
D
E

Difficulty:

(N/A)

Question Stats:

100% (01:17) correct 0% (00:00) wrong based on 3 sessions
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If Jaques deposists $1000 in a savings account at 10% simple annual interest, how much more will he earn than if he had deposited it in an account that pays 8 percent annueal interest compounded semiannually?

a) $20.00
b) $19.60
c) $18.40
d) $18.00
e) $17.40



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Re: Interest [#permalink] New post   28 Aug 2009, 07:54
\(1000(1+\frac{0.08}{2})^2-1000(1+0.1)\)
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Re: Interest [#permalink] New post   28 Aug 2009, 09:26
With Deposit A he will earn 10% on 1,000 for 1 year = $100

With Deposit B he will earn 8/2 (Semi) 4% on $1,000 for 6 months = $40
And will earn 4% on $1,040 ($ are compounded) for 6 months = $41.60

$100.00 - $81.60 = $18.40
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TheRob
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Re: Interest [#permalink] New post   28 Aug 2009, 09:30
I have always problems with interests rates

Any suggestion to get better at it?

Thanks a lot
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Re: Interest [#permalink] New post   28 Aug 2009, 09:51
It really depends on if you like to work it through step by step or an equation.

I prefer doing it the same way as Casper with the Present Value equation of \(FV=PV(1+\frac{I}{n})^n\)

Where i = Interest rate and N = # of periods compounded an PV = Initial Deposit

Once you get down the compounding these questions should become easy
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Re: Interest [#permalink] New post   28 Aug 2009, 13:39
S.I = P*R*T/100 = 1000*10*1/100 = 100
Total amount = 1000 + 100 = 1100

C.I. = P(1+R/n)^Tn

= 1000*(1 + 8/200)^2 = 1000*(1.04)^2 = 1081.6

Remember, C.I formula gives total amount while S I formula gives only the interest.

Difference = 1100 - 1081.6 = 18.4



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Re: Interest [#permalink]
28 Aug 2009, 13:39
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