Question

For the investment situation below, identify the following, and answer the question:

Sam invested 5, 000 dollars for 8 years into an account that earned 3% compounded monthly.

(a) (2 points) The annual interest rate is %.

(b) (2 points) The length of the investment is years.

(d) (2 points) There are periods in this investment.

(c) (2 points) The periodic interest rate is %.

(e) (2 points) Sam invested $ initially.
(f) (5 points) How much money in interest will Sam earn?

Answer 1

Answer to Part a.
Annual Interest Rate = 3%

Answer to Part b.
Length of the investment = 8 years

Answer to Part c.
Periods in Investment = 8 years * 12
Periods in Investment = 96 months

Answer to Part d.
Periodic Interest Rate = 3%/ 12
Periodic Interest Rate = 0.25%

Answer to Part e.
Initial Investment = $5,000

Answer to Part f.
Value after Investment period = Investment * (1 + Rate)^ Time
Value after Investment period = $5,000 * (1 + 0.0025)^ 96
Value after Investment period = $5,000 * 1.0025^96
Value after Investment period = $5,000 * 1.2709
Value after Investment period = $6,354.50

Interest earned = $6,354.50 - $5,000.00
Interest earned = $1,354.50