What is the compound interest on 1400 compounded semi-annually for five years with a rate of 8%?

Expert Answers
mcetner eNotes educator| Certified Educator

If you start with 100% of your $1,400, every half year, you add 4%, and will end up with 104%, or 1.04 times your money.  So, for each half-year, you multiply 1.04, and you end up with an exponential equation. After doing this 10 times (twice a year for 5 years), you get:

1400*(1.04)^10 = 2072.34

In general the formula for compound interest is:

A   =   P (1  +  r / n)Yn

where A is what you end up with, P is what you start with, r is the interest rate, n is number of times compounded per year, and Y is years.

revolution | Student

Consider that Principal, P invested at a rate of R% per annual, so the interest earned in first year would be:

interest= P * R%*1= PR/100.

Then, at the end of one year, the amount of interests would be the original principal plus the interest earned, which is:

P+ PR/100= P(1+R/100)

If the person who invsted money into his account earned a compound interest, means an adding up of interests together to get a value, the principal amount would be P(1+R/100) sp o the interest earned in the second year would be:

(P(1+R/100)(R/100))= P(1+R/100)(R/100)

The total amount of investments would be:

P(1+R/100)+P(1+R/100)R/100= P(1+R/100)(1+R/100)= P(1+R/100)^2.

The general formula would be A= P(1+R/100)^n

where A: amount, P: principal sm, R= rate of interest, and

n: number of interest periods.

Since we don't know what is the value of A, but we know that

P= $1400, R= 8% and n=5

so by the end of the fifth year, the total amount of investments made by the person would be:

P(1+R/100)^n= $1400(1+3/100)^5

= $1622.98

The compounded interest would be:

Total amount of investments - principal sum of amount

= 1622.98- 1400

= $1222.98