Problem 3.LO2.7 (similar to) Question Help You deposit $200 in a bank in a 10-ye

Question

Problem 3.LO2.7 (similar to) Question Help You deposit $200 in a bank in a 10-year time deposit. With a time deposit you cannot withdraw funds from the account until the end of the term. Interest in the account is compounded semiannually (m-2) at the annual nominal rate of 10%. In the final compounding interval, what is the dollar amount of interest that is earned from earlier interest (rather than off of the original principal)? In the final compounding interval, what is the dollar amount of interest that is earned from carlier interest? (Round to the nearest cent) Round to the nearest cent.)

Explanation / Answer

Problem 3.LO2.7

Hence the maturityvalue at the end of 10th year will be $530.66 out of which interst on principal portion will be $200(200*10%*10) and on interest portion will be $130.66(530.66-200-200)

Problem 3.LO2.8

Effective interest Rate=6.4%/12

=.5333%

=.0053

Opening Balance Interest Closing Balance 1 200.00 10.00 210.00 2 210.00 10.50 220.50 3 220.50 11.03 231.53 4 231.53 11.58 243.10 5 243.10 12.16 255.26 6 255.26 12.76 268.02 7 268.02 13.40 281.42 8 281.42 14.07 295.49 9 295.49 14.77 310.27 10 310.27 15.51 325.78 11 325.78 16.29 342.07 12 342.07 17.10 359.17 13 359.17 17.96 377.13 14 377.13 18.86 395.99 15 395.99 19.80 415.79 16 415.79 20.79 436.57 17 436.57 21.83 458.40 18 458.40 22.92 481.32 19 481.32 24.07 505.39 20 505.39 25.27 530.66

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