Step-by-step answer:
Given:
5% annual interest (APR)
compounded daily
Principal = 500
Solution:
Since it is compounded daily, we first calculate the
daily rate = 5% / 365 = 0.05/365
After one year,
future value
= 500 ( 1 + 0.05/365)^365
= 525.634 (to the tenth of a cent)
note: sometimes a year is considered to be rounded to 360 days, or 366 days for a leap year, but there is practically no difference in the results for this problem.
