Question 947994: You decide to invest $15000 into a bank account that that is compounding its interest monthly. Assuming the bank is paying out an interest rate of the current prime rate 3.25 - 1% (In the event that prime - 1% is less than 1%, use 1%), and the investment is for 5 years
I’m not sure I understand this question. the current prime rate is minus 1%?
a) How much money (total) do you have after the 5 years pass?
15,000*(1+.01)=15,150
15,150*(1+.01)=15,301.50
15,301.50*(1+.01)=15,454.52
15,454.52*(1+.01)=15,609.06
15,609.06*(1+.01)=15,765.15
The interest rate is Prime Rate (which is 3.25% at the present time) less 1%.
This process is not correct. The problem is looking for a future value of an investment paying compound interest monthly, for 5 years. The FV formula will have to be used. Please see the textbook, Chapter 13 for the formula.
- 5 points
Okay, so I think I’ve got this now. Period interest rate = annual interest rate ÷ number of interest periods per yr
3.25-1%=2.25%
interest periods per year are 12*5 years =60 times.
2.25%/12 interest periods=.00875*5years=.009375
So we have to find the future value using the formula..
Principle+(1+rate) and so on
15,000(1+.009375)=15,140.63 future value at one year
15,140.63(1+.009375)=15,282.57
15,282.57(1+.009375)=
b) How much do you earn in interest over the 5 years?
15,765.15-15,000=
$765.15
helppp
Answer by Fombitz(32388)   (Show Source):
|
|
|
