Question

Monique saves $100 per month and deposits the money in an account earning 3% interest compounded

monthly. How much will be in the account after 2.5 years? How much of that money will be interest?

Answer 1

• account value: $107.78
• interest: $0.78

Explanation:

You want to know the value of $100 investment earning 3% interest compounded monthly for 2.5 years.

Compound interest

The value of an account earning interest compounded monthly is ...

A = P(1 +r/12)^(12t)

where P is the original investment, r is the annual interest rate, and t is the number of years.

Here, we find the value to be ...

A = 100(1 +.03/12)^(12·2.5) ≈ 100.78

The interest is the value in excess of the original investment.

The account will hold $107.78 after 2.5 years, of which $7.78 is interest.

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