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geometry

posted by on .

Using the following values, calculate the amount accumulated (future value):


Initial Principal = $9000
Interest Rate = 8%
Number of years = 9
Monthly Compounding

  • geometry - ,

    The formula for compound interest is:
    Final amount or future value,
    A = PR^n
    where
    P = principal
    R = rate of interest per period, for example, 8% p.a. is 2/3% per month.
    R is expressed as 1+rate, so for monthly compounding, R for 8% is 1+8/1200=1.00666667
    n = number of periods, month in this case.

  • geometry - ,

    This is what i came up with..Dont know if im right.please let me know.

    FV= 9000 (1+0.08)9

    = 1.08^9 = 1.9990
    = 8000 (1.9990) = 17991.00

    Future Value = $17, 991.00

  • geometry - ,

    What you've done is correct if it is compounded annually.

    The question specifies compounded monthly.

    What you need to do is to divide the interest into monthly interest rate, namely
    R=1+0.08/12
    and compound it over n=9*12=108 periods.

    It will increase the final amount by about $450.

  • geometry - ,

    Got it..Thank you!

  • geometry :) - ,

    You're welcome!

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