Interest: Compound Interest

Michelle deposited a certain sum of money in a savings account on July 1st, 2007. She earns an 8% interest compounded semiannually. The sum of money in the account on December 31st, 2009, is approximately what percent of the initial deposit?

Correct. [[snippet]] If the interest were simple and not compounded, the initial $100 would earn 8%, or $8 dollars per year. Over 2.5 years, the interest earned would be >$$\text{Interest} = 2.5\times \$8=$20$$. Thus, the final sum would be >$$\text{Balance} = \$100 + \$20 = $120$$. Thus, the real final sum should be slightly higher than $120, which is 120% of the original $100. Answer choice C fits the bill; it is slightly higher than 120% and is indeed the correct answer.

Incorrect. [[snippet]]

Incorrect. [[snippet]] This answer would have been true had the interest been simple and not compounded. Watch out!

117%

120%

121%

135%

140%