Question

16. If we have $150 today and can invest at 4% per year, how many months (monthly compounding) do we need to invest in order to have $240 in the bank at the end?

A. 124.3

B. 113.0

C. 122.9

D. None of the above

Answer 1

Compound interest formula:

A = P(1+r/n)^nt

Here, A = Ending Amount = So in this case it is $240

P = Beginning amount = So in this case it is $150

r = Interest rate = In this case it is 4%

n = no. of compoundings a year = In this case as it is monthly compounding so it will be 12.

t = total number of periods. = In this case this is what we need to find

So, now putting values in formula;

240 = 150(1+0.04/12)^12t

240/150 = (1.003)^12t ;

So answer will be; t = 137.245

Thus option D is the correct answer