Question

The present value of the money in your savings account is $420, and you're receiving 3% annual interest compounded monthly. What is the future value in two months?      A. $422.10 B. $432.60 C. $424.11 D. $426

Answer 1

420+3%

420+12.6=

432.60

b

Answer 2

The future value is $ 422.10.

Explanation:

When an amount is compounded monthly,

Then its future value is,

`A=P(1+(r)/(1200))^t`

Where, P is the present value or principal value,

r is the annual rate of interest,

t is the number of months,

Here,

P = $ 420, r = 3 % and t = 2 months,

Thus, the future value of the amount is,

`A=420(1+(3)/(1200))^2`

`=420(1.0025)^2`

`=422.102625\approx \$ 422.10`

Option A is correct.