Wangshu puts $40000 in a savings account paying interest rate j⁽²⁾ = 11%. He withdraws the money after 22 months. How much money is in his account using

a) the "Greedy Bank" method

b) the "Practical" method

c) the "Theoretical" method

question example showing how to use these methods:

Text, 2.7 Q6. Fractional Periods What happens if we want to know A(t) but t is not an even number of periods? For example, suppose we put $100 in a savings account that pays ;(2) = 6% compounded semi-annually. How much money do we get if we withdraw the money after 15 months (1.25 years)? The effective rate per period is i = 6%/2 = 3% and the periods are cach 6 months = 0.5 years. Three possibilities: 1. Greedy Bank Method: No interest for the partial period: A(15months) = A(1.25) = A(1) = A(0) *(1 + i)2 = 100 * 1.0609 = $106.09 2. Practical or Approximate Method: Simple interest for the partial period: A(1.25) = A(1)*(1+;(2)*(t-1)) = 100*(1.03)2+(1+.06/1) = $107.68 3. Exact or Theoretical Method: Just stick the actual number of periods in the formula for compound interest, even though its not a whole number: t = 1.25 years is 2.5 six month periods so Alt) A(0)*(1 + j(2)/2)' = 100 * (1.03)2.5 = $107.67