You have $1,000 that you plan to invest in a savings account. The bank offers an annual interest rate of 5%, compounded at different frequencies. Calculate the total amount you'll have after 3 years for each compounding frequency: annually, semi-annually, quarterly, and monthly.
You have $1,000 that you plan to invest in a savings account. The bank offers an annual interest rate of 5%, compounded at different frequencies. Calculate the total amount you'll have after 3 years for each compounding frequency: annually, semi-annually, quarterly, and monthly.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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You have $1,000 that you plan to invest in a savings account. The bank offers an annual interest rate of 5%, compounded at different frequencies. Calculate the total amount you'll have after 3 years for each compounding frequency: annually, semi-annually, quarterly, and monthly.
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Step 1: Understand the Concept of Compound Interest
VIEWStep 2: Convert the Annual Interest Rate to Decimal Form
VIEWStep 3: Calculate the Amount for Annually Compounded Interest
VIEWStep 4: Calculate the Amount for Semi-Annually Compounded Interest
VIEWStep 5: Calculate the Amount for Quarterly Compounded Interest
VIEWStep 6: Calculate the Amount for Monthly Compounded Interest
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