Question

Suppose you put $2000 in a savings account at an APR of 6% compounded monthly. Fill in the table below. (Calculate the interest and compound it each month rather than using the compound interest formula. Round your answers to the nearest cent.)

Please fill in all areas that have a $ sign

Month |
Interest Earned |
Balance |
---|---|---|

$2000 | ||

1 |
$ | $ |

2 |
$ | $ |

3 |
$ | $ |

Answer #1

If you earn 6% (0.06) interest in 12 months, you earn 0.06/12 = 0.005 (0.5%) interest each month.

For month 1:

Interest = Balance from month 1 * Rate * Time = $2000*(0.005)*(1 month) = $10

Balance = Balance from month 1 + Interest from month 2 = $2000 + $10 = $2010

For month 2:

Interest = Balance from month 1 * Rate * Time = $2010*(0.005)*(1 month) = $10.05

Balance = Balance from month 1 + Interest from month 2

= 2010 + 10.05 = 2020.05

For month 3

Interest = Balance from month 2 * Rate * Time = $2020.05*(0.005)*(1 month) = $10.1

Balance = Balance from month 2 + Interest from month 3

= 2020.05 + 10.1 = 2030.15

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