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16 March, 07:54

You plan to invest $2,500 in a money market account which will pay an annual stated interest rate of 8.75 percent, but which compounds interest on a weekly basis. If you leave this money on deposit for one year (52 weeks), what will be your ending balance when you close the account?

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  1. 16 March, 08:21
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    The ending balance when you close the account will be 2728,40

    Explanation:

    The formula for compound interest, is:

    A = P (1 + r/n) ^ (nt)

    Where:

    A = the future value of the investment/loan, including interest

    P = the principal investment amount

    r = the annual interest rate (decimal)

    n = the number of times that interest is compounded per unit t

    t = the time in years.

    We are looking for A

    P = $2,500

    r = 0.0875

    n = 52

    t = 1

    Replacing,

    A = 2500 (1 + 0.0875/52) ^ (52*1)

    A = 2500 (1 + 0.0875/52) ^ (52*1)

    A = 2728,40
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