A new savings account offers 6 percent annual interest compounded every 6 months. What would be the total balance in an account after 1 year, if the initial amount in the account were $6000?
A. $80.00 B. $84.40 C. $360.00 D. $6,360.00 E. $6,365.40
(E) The interest is compounded every 6 months. To calculate interest, you must take the principal and multiply it by the interest and the length of time (using the unit used in the interest, typically years). At the end of the first 6 months the interest earned is $6,000(.06) (1/2) = $180. (Note: the 6 months are “1/2” in the equation since 6% is a yearly rate, not a bi-yearly one).
Since the interest is compounded, the second six months of the year are not earning interest on just the original $6,000, but on the interest as well, so they are actually earning interest on $6,180. The interest earned during the final 6 months of the year is $6,180(.06)(1/2) = $185.4. Therefore, the total balance is the original amount ($6000) + $180 + $185.40 = $6,365.40. The correct answer is E. ---------- How come does the compound interest formula not render the same result?
Users browsing this forum: No registered users and 1 guest
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot post attachments in this forum
GMAT(TM) and GMAT CAT (TM) are registered trademarks of the Graduate Management Admission Council(TM). The Graduate Management Admission Council(TM) does not endorse, nor is affiliated in any way with the owner or any content of this site.