Question

Fiona plans to invest $500 later today. She wants to know to what amount her investment will grow in 20 years if she earns 12 percent interest compounded (a) annually, (b) quarterly, and (c) monthly?

1) $1,966.24, $2,000.00, $2,040.00
2) $1,966.24, $2,040.00, $2,081.60
3) $1,966.24, $2,081.60, $2,208.00
4) $1,966.24, $2,208.00, $2,331.52

Answer 1

The future amounts for the investment of $500 with different compounding frequencies are $1,966.24 annually, $2,081.60 quarterly, and $2,208.00 monthly.

Step-by-step explanation:

To calculate the future amount of an investment with compound interest, we can use the formula:

A = P(1+r/n)nt

Where:

• A is the future amount
• P is the principal amount (initial investment)
• r is the interest rate
• n is the number of times interest is compounded per year
• t is the number of years

Using this formula, we can calculate the future amounts for the given scenarios:

1. Annually compounded: A = 500(1+0.12/1)1*20 = $1,966.24
2. Quarterly compounded: A = 500(1+0.12/4)4*20 = $2,081.60
3. Monthly compounded: A = 500(1+0.12/12)12*20 = $2,208.00