Question

If $18,000.00 is invested in an account for 10 years. Find the value of the investment at the end of 10 years if the interestis:(a) 5% simple interest:(b) 5% compounded monthly:

Answer 1

Principal =P = $18,000

time = T = 10 years

(a) Simple interest

SI = P x R x T

Where:

R = simple interest in decimal form = 5/100= 0.05

SI = 18,000 x 0.05 x 10 = $9,000

Value of investment = 18,000 + 9,000 = $27,000

(b) compounded monthly

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

Where:

A= future amount

n = number of compounding periods per unit t = 12

A= 18,000 (1 + 0.05/12)^12*10

A= $29,646.17