Question

I am trying to calculate simple interest for an M115 college course online. To do this I take the formula I=Prt. So, to figure out this problem:

Assume that an investment of $2000 earns an APR of 6% compounded monthly for 16 months. How much money is in your account after 16 months?

I do this:

2000 × 0.06 × 1.33333= 159.9996

Then I add 2,000

That equals 2,159.9996

After I round up, I get 2,160

My computer program says the answer is $2166.14

How do I get this number?

Answer 1

Amount Invested = $2,000

Annual Interest Rate = 6.00%
Monthly Interest Rate = 6.00% / 12
Monthly Interest Rate = 0.50%

Period = 16 months

Future Value = Amount Invested * (1 + Monthly Interest Rate)^Period
Future Value = $2,000 * 1.005^16
Future Value = $2,000 * 1.08307
Future Value = $2,166.14

So, you will have $2,166.14 in your account after 16 months.