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?
120(1+0.005)+120
120(1+0.06)+120
120⋅2
120(1+0.005)2
The correct calculation to find the principal amount at the beginning of the second month is:
120(1+0.005)2
This formula takes into account the monthly compounding of interest by multiplying the principal amount ($120) by 1 + the monthly interest rate (0.005) and then raises it to the power of 2, representing the number of months.
so which answer choice is the answer?
Apologies for the confusion. The correct answer choice is:
120(1+0.005)2