Question

James deposits $900.00 in a savings account at Wachovia Bank. The account pays an annual

interest of 5 18 % (5.5%). If he does not make any other deposits or withdrawals, how much will

he earn in interest after 3 months? What will his new total be?

Answer 1

Answer: Interest earned in 3 months is $16.5

Explanation:

Interest Earned = Principle x $\frac{r}{m}$

where,

r = Annual interest rate = 5.5%

m= Number of periods = 3 months

Principle = $900

Interest Earned = $900 x $\frac{0.055}{3}$ = $16.5

Answer 2

Answer:

$12.38

$912.38

Explanation:

State rate is the simple rate that is given by the bank against a principal without any compounding effect.

The effective interest rate is the rate of return that an investor receives including the compounding effect.

As the effective rate of return is 5.5% se, we will use this rate for interest income calculation.

Principal Amount = $900

Interest Earned = $900 x 5.5% x 3/12 = $12.38

He will earn $12.38 in 3 months

Total Value = $900 + $12.38 = $912.38

His new total will be $912.38