Welcome to the hotseat. We've prepared a guide if you'd like to read more about how it works.

Interest only credited at end of each period

0 votes
asked Feb 1, 2017 in BUS 2016H - Financial Mathematics by Pandy (2,850 points)

What does it mean for interest to only be credited at the end of each interest conversion period? 

I have an example where someone deposits R1000 and lets it accumulate at a nominal rate of 6% convertible semiannually but interest is only credited at the end of each period (I assume that's every half-year?). How does this change the calculation?

1 Answer

+2 votes
answered Feb 28, 2017 by Rowan (4,010 points)
selected Mar 28, 2017 by Richard van Gysen
Best answer
It could be that the period that they are referring to is one year.

In that case, even though you will compound the interest at the half year mark, all the interest due will only actually be received at the end of the year.

That is to say, after six months, there will still only be R1000 in the account.

This is not a definite answer, however, just one way which the question could be interpreted.
commented Apr 10, 2017 by Sure (700 points)

Since the interest conversion period is half-yearly, then the question is only describing interest conversion at the end of each 6 month period (not beginning of the period).