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WHAT On December 31 2016 Alpha Company invested 10000 in 2 years certificate with a 4 annual interest rate with semi-annual compounding?
On December 31, 2016, Alpha Company invested $10,000 in a 2-year certificate with a 4% annual interest rate, compounded semi-annually. This means the interest is calculated twice a year, resulting in an effective interest rate of 2% per compounding period. By the end of the investment period, the total amount can be calculated using the formula for compound interest, which will yield a future value of approximately $10,816.64.
What else can I help you with?
What is the effective rate of 8 with semiannual compounding?
To find the effective annual rate (EAR) for an interest rate of 8% with semiannual compounding, you can use the formula: [ EAR = \left(1 + \frac{r}{n}\right)^n - 1 ] where ( r ) is the nominal interest rate (0.08) and ( n ) is the number of compounding periods per year (2). Plugging in the values, we get: [ EAR = \left(1 + \frac{0.08}{2}\right)^2 - 1 = (1 + 0.04)^2 - 1 = 1.0816 - 1 = 0.0816 \text{ or } 8.16%. ] So, the effective rate is approximately 8.16%.
How does the frequency of interest compounding regardless of the rate of interest or period of accumulation affect the future value of any given amount?
The frequency of interest compounding significantly impacts the future value of an investment, as more frequent compounding results in interest being calculated and added to the principal more often. This leads to interest being earned on previously accrued interest, accelerating the growth of the investment. For example, compounding annually will yield a lower future value than compounding monthly or daily, even with the same interest rate and time period. Hence, increasing the compounding frequency enhances the overall returns on an investment.
What is the process of earning interest on interest that you've already earned?
compounding
Which compounding period has the highest effective annual rate?
The effective annual rate (EAR) increases with more frequent compounding periods. Therefore, continuous compounding yields the highest effective annual rate compared to other compounding intervals such as annually, semi-annually, quarterly, or monthly. This is because continuous compounding allows interest to be calculated and added to the principal at every possible moment, maximizing the effect of interest on interest.
Why you need exponents in our real life?
it deals with bank accounts and interest (compounding interest)
What is the effective rate of 8 with semiannual compounding?
To find the effective annual rate (EAR) for an interest rate of 8% with semiannual compounding, you can use the formula: [ EAR = \left(1 + \frac{r}{n}\right)^n - 1 ] where ( r ) is the nominal interest rate (0.08) and ( n ) is the number of compounding periods per year (2). Plugging in the values, we get: [ EAR = \left(1 + \frac{0.08}{2}\right)^2 - 1 = (1 + 0.04)^2 - 1 = 1.0816 - 1 = 0.0816 \text{ or } 8.16%. ] So, the effective rate is approximately 8.16%.
What is the best definition of compounding interest-?
Interest paid on interest previously received is the best definition of compounding interest.
What is best definition of compounding interest?
Interest paid on interest previously received is the best definition of compounding interest.
Is the rate on a promissory note always stated as a semiannual rate.?
No, the rate on a promissory note is not always stated as a semiannual rate. It can be expressed in various ways, including annual, monthly, or other compounding periods, depending on the terms agreed upon by the parties involved. It's essential to check the specific terms of the note to understand how the interest rate is defined.
What is the difference in the total amount of interest earned on a 1000 investment after 5 years with compounding interest quarterly versus compounding interest monthly in Activity 10.5?
The difference in the total amount of interest earned on a 1000 investment after 5 years with quarterly compounding interest versus monthly compounding interest in Activity 10.5 is due to the frequency of compounding. Quarterly compounding results in interest being calculated and added to the principal 4 times a year, while monthly compounding does so 12 times a year. This difference in compounding frequency affects the total interest earned over the 5-year period.
What is the terminology of compounding interest?
The terminology of compounding interest means adding interest to the interest that one already has on an account. The interest could be added to a bank account or to a loan.
What is the difference between actuarial interest and simple interest?
Actuarial interest takes into account compounding over time, while simple interest does not consider compounding.
How does the frequency of compounding interest impact the growth of savings?
The more frequent the compounding of interest, the faster your savings will grow. For example, daily compounding will result in faster growth compared to monthly or annual compounding since interest is being calculated more frequently. This is due to the effect of compounding on the earned interest, allowing it to generate additional interest over time.
What is compounding rate?
Compounding rate is the interest rate at which the rate grow faster than the simple interest on deposit or loan made. It is also said "interest on interest".
What is the journal entry for received semiannual interest on bonds?
[Debit] cash / bank [credit] interest on bond
What are the differences in returns between daily and monthly compounding for an investment with a fixed interest rate?
The main difference between daily and monthly compounding for an investment with a fixed interest rate is the frequency at which the interest is calculated and added to the investment. Daily compounding results in slightly higher returns compared to monthly compounding because interest is calculated more frequently, allowing for the compounding effect to occur more often.
Which compounding period has the highest effective rate of interest?
The compounding period with the highest effective rate of interest is continuous compounding. This is because interest is calculated and added to the principal at every possible moment, maximizing the amount of interest accrued over time. As a result, continuous compounding leads to a higher effective annual rate (EAR) compared to annual, semi-annual, quarterly, or monthly compounding periods. In essence, the more frequently interest is compounded, the higher the effective rate will be, with continuous compounding being the ultimate case.
