Multiple choice

Leona bought a $1$-year, $\$10,000$ certificate of deposit that paid interest at an annual rate of $8$ percent compounded semiannually. What was the total amount of interest paid on this certificate at maturity?

  1. $\$$10464
  2. $\$864$
  3. $\$816$
  4. $\$800$
  5. $\$480$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

With semiannual compounding, the interest rate per period is 8% / 2 = 4%, and there are 2 periods in 1 year. The maturity value is 10,000 * (1.04)^2 = 10,816 dollars. Subtracting the principal of 10,000 dollars gives a total interest of 816 dollars.

AI explanation

Using the compound interest formula A = P times (1 + R/100) to the power of n, the annual rate of 8% compounded semiannually gives a periodic rate of 4% for two periods. The maturity amount is 10000 times 1.04 squared, which equals 10000 times 1.0816 = 10816. The total interest paid is the maturity amount minus the principal, 10816 - 10000 = 816. The total interest paid on this certificate at maturity was $816.

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