Question

which of the following is closet to the future value of a $40000 deposit earning 3 percent interest annually and is compounded monthly after 5 years

Answer 1

As the rate is 3% per annum compounded monthly.

So, the monthly rate would be,

Let the monthly rate be i.

So, (1+i)¹² = 1.03

i = 1.03^1/12 - 1

i = 0.002466 = 0.2466% per month.

So, the amount after 5 years at 0.2466% per month compounded annually =

5 years = 5*12 = 60 months

Total amount after 5 years =

A = 40000 * (1.002466)⁶⁰

A = $46370.96

So, the future value of $40000 after 5 years when the rate is 3% per annum compounded annually is $46370.96

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