Question

Keith invests $1,800 into an account that increases by 3.5% each month to save for his first car. How much will Keith's investment be in 2 years? I provided the answer, I just need an explanation on how to do it.

Answer 1

Answer:

The answer is actually $4109.99 as the interest is compounded each month.

Step-by-step explanation:

If you use the formula A=p(1+r)^t then you get 1800(1+0.035)^24 (t is 24 because the interest is measured in months) and it comes out to 4109.99.

Answer 2

Answer: Keith's investment will be $1930.32 in 2 years.

Step-by-step explanation:

We would apply the formula for determining compound interest which is expressed as

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

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = $1800

r = 3.5% = 3.5/100 = 0.035

n = 12 because it was compounded 12 times in a year.

t = 2 years

Therefore,

A = 1800(1 + 0.035/12)^12 × 2

A = 1800(1 + 0.00291666667)^24

A = 1800(1.00291666667)^24

A = $1930.32