An investment of $1,000.00 earns 6% annual interest, compounded monthly. After 3 years, how much it will be?

Question

Please, 1)indicate the formula to use.

2)List what each variable represent in the formula as detail as possible.

3)Plug the information given to the formula and solve step by step, do NOT miss any step.

4) Give whole explanation about how to solve similar problem like this.

5)Give tips and tricks one needs to remember.

Answer 1

Hey! Lets break this down, shall we ?

So, we must solve this problem using what is given to us: An investment of $1000 earns 6% interest compounded monthly. How much will it be after 3 years?

1) We use the Compound Interest Formula A = P[1+(r/n)]^n*t

2) n = number of times compounded (monthly, yearly/annually, quarterly, semi-annually, daily, sometimes weekly)

r = the interest rate

t = time the investment accrues interest

P = The initial investment

A = Future value after t years

3) A = (1000)[1 + (0.06/12)]¹²⁽³⁾

= (1000)[1 + .005]³⁶

= (1000)[1.005]³⁶..........Put [1.005]³⁶ in the calculator first, then multiply that by 1000 such that

A = $1196.68

4) After plugging in the information given, make sure to compute order of operations in the parentheses. This actually get students mixed up in finding the correct solution.

5) Tips and Tricks: Remember what each variable means or make a compound interest cheat sheet. Also, remember the order of operations for the inside of the parentheses including the exponent.

I hope this helped!

Answer 2

1) A=P(1+r/n)^nt

2)

A=final amount

P=initial principal balance

r=interest rate

n=number of times interest applied per time period

t=number of time periods elapsed

3) A=1000(1+.06/12)^12*3 Simplify the exponent

A=1000(1+.06/12)³⁶ Do the division inside the parenthesis

A=1000(1+.005)³⁶ Do addition inside the parenthesis

A=1000(1.005)³⁶ Perform the exponent

A=1000(1.1966805) Multiply

A=$1196.68

4) Identify the variables for your problem, plug them into the equation, do the math.

5) Make sure to know the formula correctly. Make sure to correctly use the order of operations.