Question

An investment of $6,599.20 earns 4.2% interest compounded monthly over 7 years. Approximately how much interest is earned on the investment?

Answer 1

Fv=6599.20(1+0.042/12)^12*7
Fv=8850.20
Interest earned=8850.20-6599.20
=2,251
So the answer is a

Answer 2

Answer:

Find out the how much interest is earned on the investment .

To prove

Formula

$Amount =P ( 1 +\frac{r}{12})^{12t}$

Where P is the principle, r is rate in decimal form , t is the time.

As given

An investment of $6,599.20 earns 4.2% interest compounded monthly over 7 years.

4.2% is written in the decimal form

$= \frac{4.2}{100}$

= 0.042

P = $6,599.20

T = 7 years

Put in the formula

$Amount = 6599.20( 1 +\frac{0.042}{12})^{12\times 7}$

$Amount = 6599.20( 1 +\frac{0.042}{12})^{84}$

$Amount = 6599.20( 1 + 0.0035)^{84}$

$Amount = 6599.20( 1.0035)^{84}$

$Amount = 6599.20\times 1.3411$

Amount = $ 8850.187

Interest = Amount - Principle

             =  $ 8850.187 - $6,599.20

             = $2250.987

Therefore the interest is $2250.987

Option (a) is correct.