In today post,I'm going to talk about some concepts related to everyday life, we call this everyday Math. As you see the image on the side, you know I'm going to talk about money and where is money being 'stored'? Well, safely in the bank! So have you wondered why banks give you interest (peanuts though) for doing you a service of keeping your money safely? Should they charge you?
Today we are going to discuss about interest, compound interest in particular. I would strongly suggest you read these 2 posts before attempting the question first.
These 2 posts discuss the basic concepts on the differences between Simple and Compound Interest as well as what you should note when using the formulas.
I came across the following question while doing an exampaper analysis for my student recently and it so coincides with the topics I want to discuss this week.
Do the question yourself and check your level of understanding. It should take you 2 minutes.
Spot the error!
Common mistake (click here for image). Did you make this mistake too? Do you know where the error is?
The correct working is shown here. (click)
Test out your understanding
If the original question is modified to compounded half-yearly with the principle amount of $75 000 being deposited at the same rate of 1.8% per annum, calculate the total amount at the end of 1 year. What would be your answer? Leave your answer in the comment section.