Martha make an investment of $500 in an account that pay 6%interest compounded monthly

A) write a equation you could use to determine she earns in t years.

B) How much money will Martha have in her account on year from now if she never withdraw any money and reinvest the interest?

C) What is the effective annual rate for this account (think about what percent of her money has she earned at the end of one year) ?

Given that the account is compounded annually, the formula for this information will be given by:

A=p (1+r/100) ^nt

p is the principle, r is the rate, n is the number of terms, t is the time

a] The formula for the amount she will earn t years from now will be given as follows:

p=$500, r=6%, n=12

hence:

A=500 (1+6/1200) ^ (12t)

Simplifying the above we get our formula:

A=500 (1.005) ^ (12t)

b] Using the formula, the amount that Martha will have 1 year from now will be given by:

A=500 (1.005) ^ (12t)

but t=1, plugging in the value in the formula and simplifying we obtain.

A=500 (1.005) ^ (12*1)

A=$530.84

c]Effective annual rate is given by:

R = (1+i/n) ^n-1

R-effective annual rate

i=stated rate

n=compounding period

From the information given:

R = (1+6/1200) ^12-1

R=0.062~6.2%