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You deposit 2000 in an account earning 3% interest compounded monthly.

a. how much will you have in the account in 20 years
b. how much interest will you earn

1 Answer

4 votes

Answer:

a. 3641.51

b. 1641.51

Explanation:

The future value formula will tell you the amount in the account in 20 years.

Formula

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

Principal P is compounded n times per year at annual rate r for t years.

Application

The future value of the account with P=2000, r=0.03, n=12, and t=20 will be ...

FV = 2000(1 +0.03/12)^(12·20) = 2000(1.0025^240) ≈ 3641.50999

a.

The account value in 20 years will be 3641.51.

b.

The first 2000 of account value is the principal, so the interest is ...

interest = 3641.51 -2000

interest = 1641.51

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Additional comment

Many calculators and all spreadsheets have built-in capability for making this calculation.

You deposit 2000 in an account earning 3% interest compounded monthly. a. how much-example-1
User Kim Montano
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