Question

5) An investment account pays 42% annual interest compounded monthly F $2500 is invested

in this account, what will be the balance after 15 years?

Answer 1

Account balance after 15 years is $ 1,222,370.81

Explanation:

Given data:

Principal amount, P = $ 2500

rate of interest, r = 42% = 42/100 = 0.42

Here interest is compounded monthly, hence

no. of times interest is compounded per year, n = 12

time in years, t = 15 years

We know that the formula to calculate the final amount, A when the interest is compounded is:

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

Substituting the known values in the above formula, we get

A = 2500 *
`(1 + (0.42)/(12) )^(12*15)`

= 2500 *
`1.035^(180)`

= 2500 * 488.95

= $ 1,222,370.81