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Director
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Re: Steve deposited $1000 in a fixed deposit at the rate of 20% compounded [#permalink]
Whats wrong when we consider r=20% for six month compounding and term n as 2 (12 months/ 6 months compounding period) which would give answer as Rs.1440

A = 1000 (1+(r/100))^n

r and n should have same period
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Re: Steve deposited $1000 in a fixed deposit at the rate of 20% compounded [#permalink]
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Kritisood wrote:
Steve deposited $1000 in a fixed deposit at the rate of 20% compounded half-yearly. What is total amount at the end of 12 months?

A. $1200
B. $1201
C. $1210
D. $1400
E. 1440

In such questions is it implied that 20% is the annual rate?


Interest is always given annually, so it is told that compound half-yearly then the interest will be divided by 2.

Interest for the first 6 months= 1000*20%*0.50=100

Principal amount after 6 months =1000+100=1100

Interest for the second 6 months= 1100*20%*0.50=110

Total interest 100+110=210

Principal + Interest =1000+210=1210

The answer is C
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Re: Steve deposited $1000 in a fixed deposit at the rate of 20% compounded [#permalink]
For semiannual compounding, divide the interest by 2 and multiply the time by 2. Therefore, the interest will be 10% and the time will be 2. This gives the future value after 12 months to be:

Future value = 1000(1.1)^2=1.21 x 1000=1,210.
So the Answer is C.
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Re: Steve deposited $1000 in a fixed deposit at the rate of 20% compounded [#permalink]
When the question says int compounded half yearly why do we need to divide it by 2???
If it would have said per annum then you do it!
The point is to make the term same for int rate as well as time .

I don’t suppose it should be C , it has to be E

; C should have been the option if int were per annum then you divide it by 2.

Thoughts anyone ??

Posted from my mobile device
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Intern
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Re: Steve deposited $1000 in a fixed deposit at the rate of 20% compounded [#permalink]
If Steve deposits $1000 in a Fixed Deposit with a 20% compound interest annually, the interest earned would be $120 at the end of the 1st year. If the amount is left untouched for another year the interest earned will be $134 making your total amount $1254. At the end of year 3, interest for that year would be 150 taking your total to 1404. As you can see your interest keeps increasing and eventually it would be a lump sum amount. Hence it is advisable to invest in Fixed deposits.
I recommend that try Shriram city union finance for a fixed deposit.
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Re: Steve deposited $1000 in a fixed deposit at the rate of 20% compounded [#permalink]
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