Assume an investment of $6000 earns an APR of 6% compounded monthly for 16 months.

Question

How much interest has been earned? (Round your answer to the nearest cent.)

Answer 1

The formula for compound interest is:

 

I = P*{(1 + r/n)^nt -1}

 

Where:

I = the interest earned

P = the Principle or initial investment = $6000

r = the annual percentage rate expressed as a decimal = 6% = 0.06

n = the number of compoundings per year = monthly = 12

t = years = 16 months = 4/3 years

 

I = ($6000)*{(1 + 0.06/12)^12*(4/3) - 1}

 

I = ($6000)*{(1.005)¹⁶ - 1}

 

Solve for I.