Question

Melinda has a daily savings account that earns interest at 3.1% per annum. She opened her account with $2000 on March 31. How much interest will she earn during the first two years if the interest is calculated daily and paid into the account at the end of each month? (Enter the value only; do NOT add a $ sign.)

Answer 1

Opening account Balance = P = $ 2000 Interest Rate= 3.1% p.a But Interest paid in account at the end of month. Hence, Interest is compounded monthly Monthly Rate = I = 3.1/12 = 0.2583% Time = 2 years %3D Hence, Periods = n = 24 (24 months) Compound Interest = Total amount of Principal and Interest in future (or Future Value) less Principal amount at present (or Present Value) = [P (1 + i)"] – P = [2000 (1 + 0.002583)24] – 2000 %3D = 2000 [(1.002583)24 – 1] = 2000 [(1.063877 – 1] = $ 127.75