Problema Solution
I will invest $1200 at an annual percentage rate of 6.4%. If the interest is compounded monthly, how much will i have in 10 years? What is the effective rate?
Answer provided by our tutors
The formula for the compound amount is
A = P (1 + (i/n))^ (n*t)
P = $1,200
i = 0.064 (6.4% percentage rate)
n = 12 (interest compounded monthly)
t = 10 years
A = 1200*((1 + (0.064/12))^120)
A = $2,271.91 approximately
After 10 years i will have $2,271.91.
Effective interest rate formula is
r = (1 + (i/n))^n - 1
r = (1 + 0.064/12)^12 - 1 = 0.0659
The effective interest rate is %6.59.