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                              Q:
                           
                           
                                                      | A) 7401.22 | B) 3456 | 
| C) 4567 | D) 7890 | 
                              Answer:   A) 7401.22
                              
                                                            
                              
Explanation:
                               
                           
                           Explanation:
With slight modifications, the basic formula can be made to deal with compounding at intervals other than annually.
Since the compounding is done at six-monthly intervals, 4 per cent (half of 8 per cent) will be added to the value on each occasion.
Hence we use r = 0.04. Further, there will be ten additions of interest during the five years, and so n = 10. The formula now gives:
V = P(1 + r)10 = 5,000 x (1.04)10 = 7,401.22
Thus the value in this instance will be £7,401.22.
In a case such as this, the 8 per cent is called a nominal annual
rate, and we are actually referring to 4 per cent per six months.
                            
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