You plan to invest R2,500 in a money market account which will pay an annual stated (simple) interest rate of 8.75 percent, but which compounds interest on a weekly basis.If you leave this money on deposit for one year (52 weeks), what will be your ending balance when you close the account?

Question

Quizplus · Accepted Answer

Since the interest is compounded on a weekly basis, we need to use the formula for compound interest:

A = P(1 + r/n)^(n*t)

where A is the ending balance, P is the principal (initial deposit), r is the interest rate, n is the number of times the interest is compounded in a year, and t is the time in years.

Plugging in the values, we get:

A = 2500(1 + 0.0875/52)^(52*1)
A = 2728.50

Therefore, the ending balance when you close the account will be R2,728.50 (Option E).

You Plan to Invest R2,500 in a Money Market Account