Question

You deposit $ 951 each month into an account earning 6.3 % interest compounded monthly for 5 years. How much total interest will you earn?$_____________ (Round to the nearest DOLLAR)

Answer 1

ANSWER

$351

EXPLANATION

The compound interest formula is,

$A=P\mleft(1+\frac{r}{n}\mright)^{nt}$

Where A is the final amount you'll have in the account after t years. P is the initial deposit, r is the interest rate and n is the number of times the interest is compounded per year.

In this problem we have:

• P = 951

,

• r = 0.063

,

• n = 12

,

• t = 5

The total amount in the account after 5 years is,

$A=951\mleft(1+\frac{0.063}{12}\mright)^{12\cdot5}\approx1302.04$

The difference between this amount and the deposited amount is the earned interest,

$i=A-P=1302.04-951=351.04$

Hence, the interest you will earn, rounded to the nearest dollar, is $351.