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Compound Interest, SMB-023 MC

$10 000 is invested at a rate of 10% per annum compounding half yearly.

The value, in dollars, of this investment after five years, is given by

  1. `10\ 000 xx 0.10 xx 5`
  2. `10\ 000 xx 0.05 xx 10`
  3. `10\ 000 xx 0.05^10`
  4. `10\ 000 xx 1.05^10`
Show Answers Only

`D`

Show Worked Solution

`text(Interest rate)\ (r) = \frac{10%}{2} = \frac{0.10}{2} = 0.05\ \ \text{(per 6 months)}`

`text{Compounding periods}\ (n) =5 xx 2=10`

`FV` ` = PV(1+r)^n`
  `= 10\ 000 xx (1+0.05)^(10)`
  `=10\ 000(1.05)^10`

 
`=>  D`