Answer:
$874,507,135
Explanation:
To find the final capital, we use the compound interest formula:
Final Capital (FC)= Initial Capital (IC)*[(1+interest(i))]^(number of periods(n))
The problem is givining this information:
IC= $4000
i= 5% compounded monthly
n=21 (is it 21 because the grandmother started at the granson´s birth, if she would started when the baby had 1 year, then n=20 and so on)
Before we apply the formula, we have to notice that there is and inconsistency. The interest rate is compounded monthly but n is in years. So, we must change <em>i</em> or <em>n. </em>We will change the interest.
First, we have to transform the periodic interest rate into an Effective Annual rate using this formula:
Effective Annual rate= [(1+periodic interest)^(n)] -1
Effective Annual rate= [(1+5%)^(12)]-1= 79,59%
Now, we can apply the first formula:
FC= $4000*(1+79,59%)^(21)= $874,507,135
