Question #138143

Assume that your friend purchase a 6-year, 8 percent savings certificate for $1,000. If

interest is compounded annually, what will be the value of the certificate when it matures?

What is the difference between the ending value of the savings certificate compounded

semi-annually and the one compounded annually?

interest is compounded annually, what will be the value of the certificate when it matures?

What is the difference between the ending value of the savings certificate compounded

semi-annually and the one compounded annually?

Expert's answer

**solution**

Compounded annually

Principal "P= 1000"

Rate "r=0.08"

Period "n = 6"

*answer: $ 1,586.8743*

When compounding semi annually

Rate, "r=\\frac{0.08}{2}=0.04"

Period, "n=6*2=12"

Difference between semi annual and annual compounding:

"1601.0322-1586.8743 = 14.1579"

*answer: when compounding semi annually, the accumulated amount exceeds the amount compounded annually by $ 14.1579*

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