Asked by Andrew Pascual on Apr 26, 2024
Verified
You deposit $2000 in an account. At the end of 21 years, your balance is $10671.45. The bank tells you that the annual interest rate for the account is 8%. How is the interest compounded?
A) quarterly
B) yearly
C) monthly
D) daily
E) continuously
Compounded
In finance, refers to a method where interest earned is added to the principal, so that, from that moment on, the interest that has been added also earns interest.
- Comprehend the principle of compound interest and determine the future values of investments with various compounding intervals.
Verified Answer
EO
Eddie OlivaMay 01, 2024
Final Answer :
C
Explanation :
The formula for compound interest is A=P(1+r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years. To solve for n, we can rearrange the formula as n=(ln(A/P))/(t*ln(1+r/n)). Plugging in the given values, we get n=12, which means the interest is compounded monthly. Therefore, the best choice is C.
Learning Objectives
- Comprehend the principle of compound interest and determine the future values of investments with various compounding intervals.
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