Question

If you had a million dollars for just 2 months, how much interest could be earned in an account compounded monthly at 10%?

A. $100,000
B. $16,667
C. $200,000
D. $10,000

Answer 1

To calculate the interest earned on a million dollars compounded monthly at 10% for 2 months, use the formula A = P(1 + r/n)^(nt). Plugging in the values, the interest earned would be approximately $210,040.50.

Step-by-step explanation:

To calculate the interest earned on a million dollars compounded monthly at 10% for 2 months, we can use the formula:

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

Where:

• A is the future value
• P is the principal amount (initial investment)
• r is the annual interest rate (in decimal form)
• n is the number of times that interest is compounded per year
• t is the number of years

Plugging in the values:

• A = 1000000(1 + 0.10/12)^(12*2)
• A = 1000000(1 + 0.008333)^24
• A ≈ 1000000(1.008333)^24
• A ≈ 1000000(1.2100405)
• A ≈ 1210040.50

Therefore, the interest earned would be the future value minus the principal amount:

• Interest = A - P
• Interest = 1210040.50 - 1000000
• Interest ≈ $210,040.50

So the correct answer is A. $210,040.50.