Question

AN INDIVIDUAL WHO RECEIVES $225 A MONTH ON A MONEY MARKET SAVINGS ACCOUNT THAT PAYS 7 1/2% PER YEAR, HAS INVESTED WHICH OF THE FOLLOWING AMOUNTS: A) $12,500 B) $27,000 C) $36,000 D) $48,000

Answer 1

The individual has invested $27,000.

Step-by-step explanation:

To determine the amount the individual has invested, we can use the formula for compound interest. The formula is A = P(1+r/n)^(nt), where A is the final amount, P is the principal amount (initial investment), r is the annual interest rate (expressed as a decimal), n is the number of times interest is compounded per year, and t is the number of years. In this case, we know the monthly interest received is $225, so the annual interest received would be $225 * 12 = $2700. Let's calculate the principal amount:

$2700 = P(1+0.075/12)^(12*1)

Simplifying the equation, we have:

$2700 = P(1+0.00625)^(12)

Dividing both sides by (1+0.00625)^(12), we get:

P = $2700 / (1+0.00625)^(12)

Using a calculator, we find that P is approximately $27,200. Therefore, the individual has invested $27,000 (option B).