Question

You invest $25/month at a rate of 3.25% APR compounded monthly for 30 years. What is the total interest earned and final balance?

Answer 1

The total interest earned is 40.75 and the final balance is 65.75

Solution:

Given, principle amount P = 25

Interest rate $r = 3.25\% = \frac{3.25}{100} = 0.0325$

Times compounded per year n = 12

Time in years t = 30

$Amount \ A=P\left(1+\frac{r}{n}\right)^{n t}$

On substituting the values we get

$A = 25 [ 1+ \frac{0.0325}{12}]^{12\times30}= 25 [2.63]= 65.75$

Interest I = A - P [since, A = P+I]

$\Rightarrow 65.75 - 25= 40.75$