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John Moffat.
John Moffat.-
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czxy
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In the following question, I found it difficult to calculate the monthly interest through the equation: 1 + R = (1 + r)^12. It seemed that a scientific calculator is required to calculate the answer via this equation because square root has to be taken to the power of 12.
Question: A building society adds interest monthly to investors’ accounts even though interest rates are expressed in annual terms. The current rate of interest is 6% per year.
An investor deposits $1000 on 1 January. How much interest will have been earned by 30 June?
John Moffat
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I am puzzled why you are asking me this question, because your Revision Kit has an answer together with workings!!
The monthly interest rate is 6% / 12 = 0.5%.
Therefore the interest earned in the six months to June is 1,000 (1.005)^6 – 1,000.
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