You are going to deposit $3,400 in an account that pays .40 percent monthly interest. How much will you have in 5 years? Note : The given interest rate (40 percent) is monthly interest rate, not the usual given annual interest rate compounded monthly. Multiple Choice $4,302.97 $4,337.46 $4,298.19
You are going to deposit $3,400 in an account that pays .40 percent monthly interest. How much will you have in 5 years? Note : The given interest rate (40 percent) is monthly interest rate, not the usual given annual interest rate compounded monthly. Multiple Choice $4,302.97 $4,337.46 $4,298.19
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Compound Interest Calculation Exercise
**Scenario:**
You are going to deposit $3,400 in an account that pays 0.40% monthly interest. How much will you have in 5 years?
**Note:**
The given interest rate (0.40%) is a monthly interest rate, not the usual annual interest rate compounded monthly.
#### Question:
How much will you have in 5 years?
#### Multiple Choice:
1. $4,302.97
2. $4,337.46
3. $4,298.19
4. $4,320.18
### Explanation:
This exercise requires you to calculate the future value of an investment using the compound interest formula:
\[ A = P \left( 1 + \frac{r}{n} \right)^{nt} \]
Where:
- \( A \) is the amount of money accumulated after n years, including interest.
- \( P \) is the principal amount (the initial amount of money, which is $3,400).
- \( r \) is the annual interest rate (decimal).
- \( n \) is the number of times that interest is compounded per year.
- \( t \) is the time the money is invested for in years.
Given that the interest rate provided is monthly, the formula simplifies the calculation for monthly compounding:
\[ A = P \left( 1 + \frac{0.004}{1} \right)^{1 \cdot 60} \]
In this scenario:
- \( P = 3,400 \)
- \( r \) (monthly rate) = 0.004 (0.40% in decimal)
- \( n = 12 \) (compounded monthly)
- \( t = 5 \) years (60 months)\
### Instructions:
Select the correct future value from the given options by solving the compound interest formula provided above. Use a calculator or appropriate software tools to compute the precise answer. Once calculated, match your result with one of the multiple-choice options.
By following these steps, you will be able to determine the amount of money you will have in your account after 5 years.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F249e3087-ac84-499e-a043-461bff034fe9%2F30a7a1da-51e1-4b49-ad02-2481fe90167d%2Fq7fonc.png&w=3840&q=75)
Transcribed Image Text:### Compound Interest Calculation Exercise
**Scenario:**
You are going to deposit $3,400 in an account that pays 0.40% monthly interest. How much will you have in 5 years?
**Note:**
The given interest rate (0.40%) is a monthly interest rate, not the usual annual interest rate compounded monthly.
#### Question:
How much will you have in 5 years?
#### Multiple Choice:
1. $4,302.97
2. $4,337.46
3. $4,298.19
4. $4,320.18
### Explanation:
This exercise requires you to calculate the future value of an investment using the compound interest formula:
\[ A = P \left( 1 + \frac{r}{n} \right)^{nt} \]
Where:
- \( A \) is the amount of money accumulated after n years, including interest.
- \( P \) is the principal amount (the initial amount of money, which is $3,400).
- \( r \) is the annual interest rate (decimal).
- \( n \) is the number of times that interest is compounded per year.
- \( t \) is the time the money is invested for in years.
Given that the interest rate provided is monthly, the formula simplifies the calculation for monthly compounding:
\[ A = P \left( 1 + \frac{0.004}{1} \right)^{1 \cdot 60} \]
In this scenario:
- \( P = 3,400 \)
- \( r \) (monthly rate) = 0.004 (0.40% in decimal)
- \( n = 12 \) (compounded monthly)
- \( t = 5 \) years (60 months)\
### Instructions:
Select the correct future value from the given options by solving the compound interest formula provided above. Use a calculator or appropriate software tools to compute the precise answer. Once calculated, match your result with one of the multiple-choice options.
By following these steps, you will be able to determine the amount of money you will have in your account after 5 years.
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