a semiannual interest of 3.5%. Any money he invests would have to be left in the fund for at least five years if he wanted to withdraw it without penalty. a) What is the nominal interest rate on this investment? b) What is the annual effective interest rate? c) If James deposits $8,000 in the fund now, how much will it be worth in five years?

Question

Celia Ramos

Business

26 July, 13:21

a semiannual interest of 3.5%. Any money he invests would have to be left in the fund for at least five years if he wanted to withdraw it without penalty. a) What is the nominal interest rate on this investment? b) What is the annual effective interest rate? c) If James deposits $8,000 in the fund now, how much will it be worth in five years?

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Answers (1)

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Nyla · Answer 1

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Explanation:

Giving the following information:

The semiannual interest of 3.5%.

A) We need to calculate the nominal interest rate:

Nominal interest rate = 0.035/2 = 0.0175

B) Real interest rate:

Real interest rate = (1.0175^2) - 1 = 0.03531

It compounds interest twice a year. Therefore, is higher

C) Investment = $8,000

We will use the following formula:

FV = PV * (1+i) ^n

n = 10

i = 0.175

PV = 8,000

FV = 8,000 * (1.0175^10)

FV = $9,515.56