Question

Chi Tang, a business person from Taiwan, deposits 25,000 yuan in a mutual fund with bonds managed by Bank of America that is expected to pay 6% compounded semiannually. Find the interest after 5 years.

Answer 1

Solution:

Given:

$\begin{gathered} P=25,000\text{yuan} \\ r=6\text{ \%}=\frac{6}{100}=0.06 \\ t=5\text{years} \\ n=2 \end{gathered}$

To find the amount, we use the formula below;

$A=P(1+\frac{r}{n})^{nt}$

Substituting the given values into the formula;

$\begin{gathered} A=P(1+\frac{r}{n})^{nt} \\ A=25000(1+\frac{0.06}{2})^{2\times5} \\ A=25000(1+0.03)^{10} \\ A=25000(1.03)^{10} \\ A=25000\times1.03^{10} \\ A=\text{ 33,597.91 Yuan} \end{gathered}$

Hence, to find the interest after 5years,

$\begin{gathered} \text{Amount}=\text{principal+interest} \\ \text{Interest}=\text{amount}-\text{principal} \\ \text{Interest}=33597.91-25000 \\ \text{Interest}=8597.91\text{ Yuan} \end{gathered}$

Therefore, the interest after 5years is 8,597.91 Yuan