Question

Determine the future value of a simple interest investment where 5% interest paid monthly for

1.5 years on $1000.

Answer 1

Answer: the future value of the simple interest investment, where 5% interest is paid monthly for 1.5 years on $1000, is $18074.06.

Explanation:

To determine the future value of a simple interest investment, we need to calculate the interest earned over the investment period and add it to the original investment amount. Here's a step-by-step explanation for calculating the future value of a simple interest investment with a 5% interest rate paid monthly for 1.5 years on $1000:

Step 1: Convert the annual interest rate to a monthly rate.

Since the interest rate is 5% per year and the interest payments are made monthly, we need to convert the annual interest rate to a monthly interest rate. We can do this by dividing the annual interest rate by 12:

Monthly interest rate = Annual interest rate / 12

Monthly interest rate = 5% / 12 = 0.05 / 12 = 0.00417

Step 2: Calculate the interest payment for each month.

For each month, we can calculate the interest payment by multiplying the monthly interest rate by the current balance:

Interest payment = Monthly interest rate * Current balance

Let's calculate the interest payment for the first month:

Interest payment = 0.00417 * $1000 = $4.17

Step 3: Add the interest payment to the current balance to get the new balance.

After each interest payment, we can add it to the current balance to get the new balance:

New balance = Current balance + Interest payment

New balance = $1000 + $4.17 = $1004.17

Step 4: Repeat the steps for each month.

We can repeat steps 2 and 3 for each of the 12 months in the first year and then for the 6 months in the second year.

Step 5: Add up the final balance.

After all 18 interest payments have been made, the final balance will be the sum of all the new balances:

Final balance = $1004.17 + $1004.17 + ... + $1004.17 (18 times) = $1004.17 * 18 = $18074.06

So, the future value of the simple interest investment, where 5% interest is paid monthly for 1.5 years on $1000, is $18074.06.

Answer 2

Explanation:

The simple interest formula is given by I = Prt, where P is the principal amount, r is the interest rate (per compounding period), and t is the time in years.

In this case, the interest rate is 5% per month, so we need to convert it to the equivalent annual interest rate, given by r = (0.05 x 12) = 0.6 (since there are 12 months in a year).

The time is 1.5 years, so t = 1.5.

So, the simple interest is:

I = Prt = 1000 x 0.6 x 1.5 = 900

The future value of the investment is the principal amount plus the interest earned, given by:

Future value = P + I = 1000 + 900 = 1900

So, the future value of the investment is $1900.