Question

Martha Burns invested $14,200 in an account that pays 6% interest compounded monthly. Find the future value and the interest she earned on her investment if she kept it for 8 years.

Answer 1

$22,920.83

Explanation:

assuming 6% is annual rate

so 12 months in a year = 6%/12 = 0.5% per month

so every month she gets (1+0.5%) growth on her previous balance

so for 8 years = 96 months,

she'll get that growth 96 times

so it'll be 14,200 *(1+0.5%) ^ 96 =22,920.83

Answer 2

Answer: Martha earned $13,728.12 in interest over 8 years.

Explanation:

The future value of Martha's investment can be calculated using the formula:

FV = PV (1 + r/n)^(nt)

Where:

PV = present value (initial investment) = $14,200

r = annual interest rate = 6%

n = number of times the interest is compounded per year = 12 (monthly)

t = number of years the investment is held = 8

Plugging in the values, we get:

FV = 14,200(1 + 0.06/12)^(12*8) = $27,928.12

The interest earned on her investment is the difference between the future value and the present value:

$27,928.12 - $14,200 = $13,728.12

So Martha earned $13,728.12 in interest over 8 years.