Question

Suppose you decide to deposit $25,000 in a savings account that pays a nominal rate of 4%, but interest is compounded daily. Based on a 365-day year, how much would you have in the account after six months

Answer 1

Answer: $25,508.32

Explanation:

Amount in account is the Future Value of deposit today.

Future Value = Present Value * ( 1 + i ) ^ n

i = 4% annually. Convert to daily rate.

= 4/365

= 0.011%

n = 6 months.

= 6 * 365/12

= 182.50

= 183

FV = 25,000 ( 1 + 0.011%)¹⁸³

= $25,508.32

If there are options to this question and this answer isn't one of them, pick the closest to it. The difference is due to rounding errors.