Question

Ikaros invests $22,000 in a bank at 3.2% interest compoundedamonthly. How much money will he have after 7 years?

Answer 1

The final value of an investment P in a bank at a compound interest of rate r for t years is given by:

$FV=P(1+\frac{r}{m})^{m\cdot t}$

Where m is the number of compounding periods per year.

We are given:

P = $22,000

r = 3.2% = 3.2 / 100 = 0.032

t = 7 years

m = 12 (12 months in a year).

Applying the formula:

$FV=\ 22,000(1+\frac{0.032}{12})^{12\cdot7}$

Calculating:

$\begin{gathered} FV=\ 22,000(1.0026666)^{84} \\ \\ FV=\operatorname{\ }22,000(1.2507) \\ \\ FV=\ 27,515 \end{gathered}$

Ikaros will have $27,515 after 7 years