Question

investing $12,000 in a savings account at 6% annual interest compounded monthly will result in approximately how much money after five years? use formula A 0 P(1 + r/m) ^mt

Answer 1

$16186.20

Explanation:

Assuming that P represents the initial amount, A represents the end amount, r represents the annual interest rate, m represents the amount of times compounded per year, and t represents the amount of years, we can write this as

A = P(1+r/m)^(mt)

Since 12,000 is invested, that is the initial amount. To find the interest rate as a decimal from a percent (as we need it in decimal form for this formula), we can divide the percent by 100 to get 6%/100 = 0.06 as our interest rate. Because there are 12 months in a year, the interest is compounded 12 times a year, and since it takes 5 years, t=5. Our formula is now

A = 12000 * (1+0.06/12)^(12 * 5)

A = 12000 * (1+0.06/12) ^(60)

A = 16186.20 rounded to the nearest cent