Question

Gannon has deposited $742 in a savings account that earns interest at a rate of 3.4% compounded monthly. What will the account balance be in 15 years?

Answer 1

Firstly, solve the effective annual interest (ieff) with the equation,
 
                          ieff = (1 + i/m)^m -1

where i is the interest rate and m is the number of times the interest is compounded in a year. In this problem, m is 12

Substituting the values, 
                            ieff = (1 + 0.034/12)^12 - 1 =0.03453

To solve for the future (F) amount of the present investment (P), 
                                       
                                        F = P x (1 + ieff)^n

where n is number of years.
 
                                        F = ($742) x (1 + 0.03453)^15

Thus, the answer is $1234.76.