Question

Mega-Mergers-R-Us State Bank pays 4% annual interest, compounded monthly, on savings accounts. If you deposit $10,000 into an account and make no further deposits or withdrawals, how much interest will you have earned in total after 5 years?

Answer 1

Here we will use the following formula:

FV = PV * (1 + r%)n

where, FV = Future value, PV = Present value = $10000, r = rate of interest = 4% compounded monthly, so monthly rate = 4% / 12 = 0.3333%, n= time period = 5 * 12 = 60 months

now, putting theses values in the above equation, we get,

FV = $10000 * (1 + 0.3333%)60

FV = $10000 * (1 + 0.0033333)60

FV = $10000 * (1.003333)60

FV = $10000 * 1.22099659

FV = $12209.97

So, future value is $12209.97

Now, interest is

Interest = Future value - Present value

Interest = $12209.97 - $10000 = $2209.97