Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year. How much would be in the account after 8 months, assuming each month has 30 days?

a. $5994.28

b. $5178.09

c. $5436.99

d. $6294.00

e. $5708.84

b. $5178.09

Explanation:

Use future value (FV) formula;

FV = PV (1+r) ^t

PV = Initial deposit = $5,000

r = daily interest rate in this case = 5.25%/360 = 0.014583% or 0.00014583 as a decimal.

t = total duration of investment (# of days in this case) = 8*30 = 240 days

Next, plug in the numbers into the formula;

FV = 5,000 * (1+0.00014583) ^240

FV = 5,000 * 1.035616238

FV = 5,178.0812

Therefore, the account will have 5,178.09 after 8 months.