Posted by George on Wednesday, April 13, 2011 at 10:37pm.
For monthly compounding (as opposed to annual), we need to calculate two things:
1. the monthly compounding interest:
annual interest/12=9%/12=0.75%=0.0075
2. the number of periods to cover 7 years
= 7*12 =84 (months)
The future value
= Principal * (1+interest)^periods
= 2000*1.0075^84
= $3746.40
(compare to simple interest
2000*(1+0.09*7)= $3260 < $3746, OK)
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