Manually calculate the compound interest on an investment of $12,500 at 7.5% interest, compounded semiannually, for 2 years. (Round value to the nearest cent)
A) $1,983.00
B) $1,983.13
C) $14,483.14
D) $450.00

Question

Quizplus · Accepted Answer

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($12,500), r is the annual interest rate (7.5%, or 0.075 as a decimal), n is the number of times that interest is compounded per year (2 for semiannually), and t is the time the money is invested for in years (2 years). Plugging in the values: A = 12500(1 + 0.075/2)^(2*2) = 12500(1 + 0.0375)^(4) = 12500(1.0375)^(4) ≈ 13983.13. The interest earned is the final amount minus the principal: 13983.13 - 12500 = $1,983.13.

Manually Calculate the Compound Interest on an Investment of $12,500