Problema Solution

An initial deposit of $900 earns 11% interest, compounded monthly. How much will be in the account in

5 1/2 years?

Answer provided by our tutors

The formula for the compound amount after t years is


A = P(1 + i)^n


where


A is the future (maturity) value;

P = $900 is the principal;

r = 0.11 or 11%is the annual interest rate;

m = 12 is the number of compounding periods per year (compounded monthly)

t = 5 1/2 years = 5.5 years is the number of years;

n = m*t = 12*5.5 = 66 is the number of compounding periods;

i = r/m = 0.11/12 = is the interest rate per period;


A = 900(1 + 0.11/12)^66


A = $1643.59


after 5 1/2 years there will be $1643.59 in the account.