You deposit $10,000 in an account earning 5% interest, compounded semi-monthly (twice a month). You plan to leave the account untouched for 25 years. How much interest will you earn over the 25 years?
Round your answer to the nearest cent.
P = Po(1+r)^n.
r = (0.05/12)*1/2 = 0.0020833 =
Semi-monthly % rate.
n = 2Comp/mo. * 300mo = 600 Compounding periods.
Solve for P.
I = P-Po.
To calculate the amount of interest earned over 25 years, we need to use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the final amount
P = the principal amount, which is $10,000 in this case
r = the annual interest rate, which is 5%
n = the number of times interest is compounded per year, which is 12 since it's compounded semi-monthly
t = the number of years, which is 25
First, let's convert the annual interest rate to a decimal by dividing it by 100: 5/100 = 0.05
Plug in the values into the formula:
A = 10,000(1 + 0.05/12)^(12*25)
Now, we can calculate the final amount.