Question

Your client invested $10,000 in an interest-bearing promissory note earning an 11% annual rate of interest, compounded monthly. How much will the note be worth at the end of 7 years, assuming that all interest is reinvested at the 11% rate

Answer 1

The correct answer is $21,522.04.

Explanation:

According to the scenario, the given data are as follows:

Present value = $10,000

Rate of interest = 11%

Rate of interest (r) ( compounded monthly) = 11% ÷ 12 = 0.00916

time period = 7 years

Time period ( compounded monthly) (t) = 7 × 12 = 84

So, we can calculate the future value by using following method:

FV = PV × ( 1 + r)^t

By putting the value, we get,

FV = $10,000 × ( 1 + 0.00916)^84

FV = $21,522.04