Question

If you invest $500 at 3% compounded monthly for 2 years, how much interest you do earn? Show work.

Answer 1

Answer:

  $30.88

Step-by-step explanation:

The account value is given by ...

  A = P(1 +r/n)^(nt)

where P is the principal invested, r is the annual interest rate, t is the number of years, n is the number of times interest is compounded per year.

The amount of interest earned is the account value less the initial investment:

  I = A - P = P(1 +r/n)^(nt) -P  = P((1 +r/n)^(nt) -1)

Filling in the given values, we get ...

  I = 500((1 +.03/12)^(12·2) -1) = 500(1.0025^24 -1) ≈ $30.88

The amount of interest earned is $30.88.