Question

What amount today is equivalent to $10,000 4 years ago, if money earned 5.5% compounded monthly over the last 4 years?

a) $8,212.63
b) $11,547.31
c) $9,654.87
d) $10,345.13

Answer 1

To find the equivalent amount today to $10,000 4 years ago with 5.5% monthly compounded interest, use the compound interest formula to calculate the future value.

Step-by-step explanation:

To find the amount today that is equivalent to $10,000 4 years ago, we need to calculate the future value of $10,000 after 4 years of monthly compounding at a 5.5% interest rate.

Using the compound interest formula:
A = P(1 + r/n)^(nt)

where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years, we can plug in the values:

A = 10000(1 + 0.055/12)^(12*4)

Simplifying the equation will give us:
A ≈ $11,547.31

Therefore, the amount equivalent to $10,000 4 years ago is approximately $11,547.31, which is option b).