Question

Little Miss Buffet takes all the money from her piggy bank and puts it into a savings account at her local bank. The bank promises an annual interest rate of 2.5% on the balance, compounded semiannually. How much will she have after one year if her initi?

Answer 1

You didnt give an intial amount, so I'll use `$100` (you can always multiply)

Explanation:

If the annual rate is `2.5%` then the semiannual rate is `1.25%`

After half a year the original money has grown to:
`$100.00+1.25/100xx$100.00=$101.25`

The second halfyear goes like this:
`$101.25+1.25/100xx$101.25=$102.52`

Which is slightly more than if the interest were compounded annually (it would have been `$102.50` then)
On the long run though, the number of compoundings per year can make a significant difference.