A total of $120 is invested monthly with an annual compound interest rate of 6%, compounded monthly. Which of the following calculations explains how you can find the principal amount at the beginning of the second month?
To find the principal amount at the beginning of the second month, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = Amount at the end of the investment period
P = Principal amount (initial investment)
r = Annual interest rate (in decimal form)
n = Number of times interest is compounded per year
t = Time in years
In this case,
P = $120
r = 6% = 0.06
n = 12 (compounded monthly)
t = 1/12 (as we are calculating for the first month)
Plug in the values into the formula:
A = 120(1 + 0.06/12)^(12 * 1/12)
A = 120(1.005)^1
A = 120(1.005)
A = 120.6
Therefore, the principal amount at the beginning of the second month is $120.