Question

Milan deposited 4000 into an account with 5.4% interest, compounded monthly. Assuming that no withdrawals are made, how much will he have in the account after 3 years. Round to nearest cent

Answer 1

Milan will have $4701.73 in his account

Explanation:

Final Value in Compound Interest

The compound interest computes each interest earned in a period including the interest earned in the previous periods.

If an initial value or principal P is deposited into an account with an interest rate i, during n periods, the final value FV will be

`FV=P(1+i)^n`

If the interest is compounded monthly we must convert to the monthly equivalent:

`\displaystyle i=(5.4)/(12* 100)=0.0045`

The period of investment must be expressed in months, thus

`n=3\cdot 12=36`

Now we find the final value

FV=4000(1+0.0045)^36=4701.73

Milan will have $4701.73 in his account