Question 140939
Which do you think pays more: 4.25% simple interest for 3 years or 4% interest compounded semi-annually for the same amount of time?
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Simple Interest Equation:
A(t) = P(1+rt)
A(3) = P(1+0.0425*3) = 1.1275P
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Compounded semi-annually Equation:
A(t) = P(1 + (r/n))^(nt)
A(3) = P(1 + (0.0425/2))^(2*3)
A(3) = P(1.02125)^6
A(3) = P(1.134468...
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Compounding semi-annually gives a greater outcome.
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Cheers,
Stan H.