Question

An investor places $5,000 in an account. The stated annual interest rate is 6% compounded monthly. The value of the account at the end of three years is closest to:

Answer 1

Answer:

$5,983.40

Explanation:

Data provided in the question:

Principle amount = $5,000

Interest rate, r = 6% = 0.06

Time, t = 3 years

Compounded monthly i.e number of periods n = 12

Now,

Final amount = Principle × $\left( 1 + \frac{r}{n} \right)^{\Large{n\times t}}$

or

Final amount = $5,000 × $\left( 1 + \frac{0.06}{12} \right)^{\Large{12\times3}}$

or

Final amount = $5,000 × 1.005³⁶

or

Final amount = $5,000 × 1.196

or

Final amount = $5,983.40