Date "Deposit

(Withdrawal)" Date "Deposit

(Withdrawal)"

1/1/17 $9,000 1/1/19 $4,039

1/1/18 ($6,915) 1/1/20 $6,085

The accompanying table, shows a series of transactions in a savings account. The account pays

5%

simple interest, and the account owner withdraws interest as soon as it is paid. Calculate the following:

a. The account balance at the end of each year. (Assume that the account balance at December 31, 2016, is zero.)

b. The interest earned each year.

c. The true rate of interest that the investor earns in this account.

a. The account balance at the end of 2017

is

$nothing.

(Round to the nearest dollar.)

The account balance at the end of 2018

is

$nothing.

(Round to the nearest dollar.)

The account balance at the end of 2019

is

$nothing.

(Round to the nearest dollar.)

The account balance at the end of 2020

is

$nothing.

(Round to the nearest dollar.)

b. The annual interest for 2017

is

$nothing.

(Round to the nearest cent.)

The annual interest for 2018

is

$nothing.

(Round to the nearest cent.)

The annual interest for 2019

is

$nothing.

(Round to the nearest cent.)

The annual interest for 2020

is

$nothing.

(Round to the nearest cent.)

c. Compare the true rate of interest to the stated rate of interest. Discuss your finding.(Select the best answer below.)

A.

The true rate of interest is 2.50%,

since savings accounts earn interest compounded semiannually. When an investment earns (semiannual) compound interest, the stated rate of interest is the true rate of interest (return), which is the actual rate of interest earned.

B.

The true rate of interest is

5%,

the same as the stated rate of interest. When an investment earns simple interest, the stated rate of interest is the true rate of interest (return), which is the actual rate of interest earned.

C.

The true rate of interest is 5.10%,

since savings accounts earn interest compounded semiannually. When an investment earns (semiannual) compound interest, the stated rate of interest is the true rate of interest (return), which is the actual rate of interest earned.