Suppose $3000 is invested at a rate of 7% per year compounded monthly. (Round your answers to the nearest cent.)

Question

Suppose $3000 is invested at a rate of 7% per year compounded monthly. (Round your answers to the nearest cent.)

 

 

a.) Find the principal after 6 months.

 

b.)  Find the principal after 1 year.

 

c.) Find the principal after 20 years.

Answer 1

Compound interest follows the equation:

A(t) = A₀ (1+r/n)^nt

Where A₀ is the initial investment, A is the amount at time t, r is the interest rate (as a decimal), n is the number of times compounded per year, and t is the time in years.

 

For your problem, you have A₀ = $3,000, r = 0.07, n = 12

a) t = 0.5 yr

b) t = 1 yr

c) t = 20 yr

 

You just need to plug the values in and use your calculator to solve.