Answer to Question #196927 in Financial Math for Beauty Magadlela

Question

Thando invested R10 000 in a special savings account on 15 May at an interest rate of 15% per year, compounded every three months for seven months. Interest is calculated on 1 January, 1 April, 1 July and 1 October of every year.

If fractional compounding is used for the full term of seven months, the total amount of interest received is

[1] R892,79.

[2] R898,43.

[3] R901,73.

[4] R894,04.

[5] none of the above

Answer 1

Compounded interest

Formula= $Principal\times Rate\times Time$

Within first 3 months:

$10,000\times\frac{15}{100}\times\frac{2.5}{12}=312.50$

Following 3 months:

$10,312.50\times\frac{15}{100}\times\frac{3}{12}=386.71875$

Last 3 months:

$10,699.21875\times\frac{15}{100}\times\frac{1.5}{12}=200.6103516$

Total interest=312.5+386.71875+200.6103516=899.8291

None of the above