Question

1.Charles wants to invest $20,000. The investment firm is offering 8% interest compounded monthly. How much money will he have made if he leaves his money with the bank for 40 years?2.Lisa’s grandmother left her a $100,000 inheritance. She wants to invest themoney in an account paying 7.2% interest compounded continuously. How muchmoney will be in the account after 30 years?3.John saved $50,000. and wants to put the money into an Index Annuity that paysan average of 8.4% per year, compounded semi-annually. How long will it takehim to reach his goal of $1,000,000?4.Susie needs to make $100,000 to pay her home mortgage and has $10,000 toinvest. How much interest will she need if her bank compounds the interestannually to reach her goal?5.Betty wants to retire in 45 years. She needs $2,000,000. If she’s able to find aMutual Fund that offers 9.5% interest and compounds quarterly, how much willshe need for a deposit?

Answer 1

Apply the compound interest formula:

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

Where:

A: future value of the investment

P: Principal amount

r: interest rate (in decimal form)

n: number of compounding periods in each year

t: years

Replacing:

A= 20,000 (1+0.08/12)^12x40

A = 20,000 (1.0067)^480

A= 485,467.7116