SOLUTION: Suppose that a savings account pays an effective rate of interest of 9 percent. What is the equivalent annual compound interest rate if interest is compounded semi-annually?
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Question 1160384: Suppose that a savings account pays an effective rate of interest of 9 percent. What is the equivalent annual compound interest rate if interest is compounded semi-annually?
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Answer by ankor@dixie-net.com(22740) (Show Source): You can put this solution on YOUR website!
Suppose that a savings account pays an effective rate of interest of 9 percent.
What is the equivalent annual compound interest rate if interest is compounded semi-annually?
:
Let a = the initial amt of the account
let i = the equiv interest rate
then the resulting annual amt = 1.09a
Compounded semi-annually
= resulting amt compounded semi-annually
;
= 1.09a
simplify, divide both sides by a
= 1.09
find the square root of both sides
1 + =
= - 1
multiply both sides by 2
i =
using your calc
i = .08806 or 8.8% equiv compound interest
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