You invest $12000 in stocks with a project growth of 8 predict the value of your investment after 6 years if the interest is compounded monthly.

Question

interpret, write an equation, then solve.

Answer 1

the formula for Future Value when compounded monthly is FV = Principal (1 + I/n)^nt

 

in this case, the Principal = $12,000, Interest rate = 8%, the compounding period is monthly, and the number of years is 6

 

first, we have to change the interest rate from annual (0.08) to monthly, which is 0.08/12 = 0.006667

 

so, our formula becomes FV = $12000 (1 + 0.006667)¹²⁽⁶⁾

 

FV = $12000 (1.006667)⁷²

FV = #12000 (1.6135) ≅ $19,362