Suppose Tabitha finds an annuity that pays 7.0% annual interest, compounded semiannually. She decides to invest 650 semiannually in this annuity for 5 years. How much interest does she earn during the 5 years?

Solution

S u pp ose T abi t ha f in d s an ann u i t y t ha t p a ys 7.0% ann u a l in t eres t, co m p o u n d e d se miann u a ll y . S h e d ec i d es t o in v es t 650 se miann u a ll y in t hi s ann u i t y f or 5 ye a rs . Ho w m u c h in t eres t d oes s h e e a r n d u r in g t h e 5 ye a rs ?

Interest : 266.89

Solution steps

Translate the problem into an equation:

916.88919 \dots = 650 + I

Solve for

I, 916.88919 \dots = 650 + I : I = 266.89

Interest : 266.89