Question

Use the appropriate compound interest formula to compute the balance in the account after the stated period of time $7,000 is invested for 11 years with an APR of 2% and monthly compounding, The balance in the account after 11 years is $ 924,000.38 (Round to the nearest cent as needed.)

Answer 1

Since $7,000 is to be invested once at the starting of the period , therefore we shall use the following formula for compounding purpose:

Amount = Principal(1+r)^t

where r is the interest for the period

and t is the number of time periods.

In the question we have to find the amount when:

Principal is $7,000

r is 2/12 = 0.167% or 0.00167 (Since APR is 2% , to calculate monthly rate we shall divide the rate by 12)

t is 11 years* 12 = 132 periods( In 11 years it will be compounded every month thus total number of compiunding periods would be obtained by multiplying by 12)

Therefore ,

Amount = $7,000*[(1+0.00167)^132]

= $7,000 * 1.246396

= $8724.772