Use the compound interest formula for compounding more than once a year to determine the accumulated balance after the stated period.
$5500 deposit at an APR of 2% with monthly compounding for 7 years
The compound interest formula for compounding more than once a year is:
A = P(1 + r/n)^(nt)
Where:
A = the accumulated balance
P = the principal amount (initial deposit)
r = the annual interest rate (in decimal form)
n = the number of times interest is compounded per year
t = the number of years
In this case:
P = $5500
r = 2% = 0.02
n = 12 (monthly compounding)
t = 7 years
A = 5500(1 + 0.02/12)^(12*7)
A = 5500(1 + 0.00167)^(84)
A = 5500(1.00167)^84
A = 5500(1.161834)
A ≈ $6,390.04
Therefore, the accumulated balance after 7 years with monthly compounding at an APR of 2% is approximately $6,390.04.