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30 October, 16:32

Spartan Credit Bank is offering 6.1 percent compounded daily on its savings accounts. You deposit $4,500 today. a. How much will you have in the account in 6 years

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  1. 30 October, 16:34
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    We will have $6488.6 in our account in 6 years.

    Explanation:

    The rate is 6.1% but it is compounded daily which means that the effective annual interest rate will be different to the stated rate. In order to find the EAR we will use the formula

    (1 + (R/N)) ^N) - 1

    In this case R=6.1% and N is 365 as there are 365 days in a year which means there will be 365 compounding periods as it is compounded daily.

    We will put these values in the formula.

    (1 + (0.061/365)) ^365) - 1

    = (1.000167^365) - 1=1.062893-1=0.062893

    The Ear is 6.289%

    Now in order to find how much we will have in our account in 6 years will use the formula

    Future value = Present value * (1+Ear) ^Number of years.

    Future value = 4,500 * (1+0.06289) ^6=6488.6
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