Question

An investment of $9,875 earns 4.8% interest compounded monthly over 12 years. Approximately how much interest is earned on the investment? a. $4,740 b. $7,458 c. $7,672 d. $17,567 Please select the best answer from the choices provided A B C D

Answer 1

Answer:

Option (c)  $7,672

Explanation:

Data provided in the question:

Investment amount i.e principle = $9,875

Interest rate,r = 4.8%

Time, t = 12 years

Now,

Future value = Principle ×$\left( 1 + \frac{r}{n} \right)^{\Large{n \cdot t}}$

n = number of times compounded per year

Future value =$= 9875\times\left( 1 + \frac{ 0.048 }{ 12 }\right)^{\Large{ 12 \cdot 12 }}$

Future value =$9875\times{ 1.004 } ^ { 144 }$

Future value =$9875\times1.776866$

Future value = $17,546.55

Also,

Future value = Principle + Interest

Therefore,

$17,546.55 = $9,875 + Interest

or

Interest = $17,546.55 - $9,875

= 7671.55 ≈ $7,672

Hence,

Option (c)  $7,672