You can earn $42 in interest on a $1,000 deposit for eight months. If the EAR is the same regardless of the length of the investment, how much interest will you earn on a $1,000 deposit for: a. 9 months. b. 1 year. c. 1.9 years.

You can earn $42 in interest on a $1,000 deposit for eight months. If the EAR is the same regardless of the length of the investment, how much interest will you earn on a $1,000 deposit for: a. 9 months. b. 1 year. c. 1.9 years.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8EA: You put $250 in the bank for S years at 12%. A. If interest is added at the end of the year, how...

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Question

You can earn $42 in interest on a $1,000 deposit for eight months. If the EAR is the same regardless of the length of the investment, how much interest will you earn on a $1,000 deposit for:

a. 9 months.

b. 1 year.

c. 1.9 years.

Expert Solution

Step 1: Introduction

Compound interest is computed by multiplying the original principal amount by one plus the yearly interest rate multiplied by the number of compound periods minus by one. The whole original loan amount is then deducted from the final value. Compound interest is interest computed on a loan or deposit depending on both the initial principal and the accumulated interest from prior periods.

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