Question 1 (10 points)
Many banks try to attract customers by providing the best interest rates possible. In this exercise, you will analyze several
different interest rates to determine the true impact of a higher rate. Recall that the formula for compound interest is
A = P(1 + **, where P is principal, A is amount, r is the annual rate, m is the number of compounding periods, and t is the
number of years. Using this formula determine the amount (A) of money for each different interest rate that you will have in the
bank after one year if the interest is compounded monthly. Round to the nearest cent.
P (principal)
$1000
$1000
$1000
$1000
(annual rate)
1%
2%
5%
88
8%
How often
compounded
Monthly
Monthly
Monthly
Monthly
m (number of
compounding
periods)
12
12
12
12
(number of years) A (amount)
1 year
1 year
1 year
1 year