Interest

[mathhh10670]

Question: If a savings account pays an effective rate of interest of 8.7 percent, What is the equivalent semiannual compound interest rate?

I tried putting a figure into the formula Future Value=Present Value(1+r/100n)^nt, where r is the rate of interest, n is the number of periods, and t is the number of years. Then I used the figure and put it back into the formula with n=2. But I didn't get the right answer

 

[tkhunny]

You must know the difference between Nominal and Effective. "Effective" is AFTER you have played with all the compounding and periodic features.

There is a Nominal Rate, i, such that [math]\left(1 + \dfrac{i}{2}\right)^{2} = 1.087[/math]
Can you solve for i? The problem may want i/2.

 

[mathhh10670]

it worked thank you

 

[tkhunny]

No worries. It's what we do with people who provide enough information and who show their own work right up front. THAT is how it's supposed to work!!