Question

congratulations! you were the 10th caller on the kmth morning show and you just won $4,000.00. after you calm down, you decide to put the money into a bank account so that you will have even more money for a trip to europe. snurling bank tells you that they will pay 10% per year compounded monthly. how much money will you have for your trip in 2 years? a) $4,880.56 b) $4,884.56 c) $4,881.56 d) $4,879.56 e) $4,877.56 f) none of the above.

Answer 1

Compound interest is the idea that interest is earned on top of interest from that point forward by adding accumulated interest back to the principal amount. Here, a month's worth of compound interest is calculated (time period). As a result, the time period is 12 times, and the interest rate is divided by 12.

The scenario states that the computation of the provided data is as follows:

The current value is $4000.

Rate = 7%

Monthly compound rate equals 10% times 12.

Duration = 2 x 12 = 84

So, using a financial calculator, we can estimate the value in the future.

FV = $4,884.56

Principal multiplied by one plus the interest rate divided by the number of periods, raised to the power of the number of periods, and that whole subtracted from the principal amount to yield the interest amount, is how monthly compounding is calculated.

To know more about Compound interest, click here:-

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