Question

What is the value of a $500 investment with a 9% interest rate that is compounded monthly for 3 years?

HELP OMG BRU

Answer 1

$654.32 (to the nearest cent)

Explanation:

Compound interest is based on the principal amount and the interest that accumulates on it in every period.

Monthly Compound Interest formula:

`CI = P(1 + ((r)/(n) ))^(nt) - P`

where:

P = principal amount

r = annual interest rate (as a decimal)

n = frequency or number of times the interest is compounded annually

t = overall tenure in years

So for this problem:

P = 500

r = 9 ÷ 100 = 0.09

n = 12

t = 3

Therefore,

Compound Interest =
`P(1 + ((r)/(n) ))^(nt) - P`

= 500 x (1 + (0.09/12))^(12 x 3) - 500

= 500 x (1.0075)^36 - 500

= 154.3226855

So the value of the $500 investment = principal amount + compound interest

= 500 + 154.3226855

= $654.32 (to the nearest cent)