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21 June, 11:20

Gannon has deposited $742 in a savings account that earns interest at a rate of 3.4% compounded monthly. What will the account balance be in 15 years?

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  1. 21 June, 13:10
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    Firstly, solve the effective annual interest (ieff) with the equation,

    ieff = (1 + i/m) ^m - 1

    where i is the interest rate and m is the number of times the interest is compounded in a year. In this problem, m is 12

    Substituting the values,

    ieff = (1 + 0.034/12) ^12 - 1 = 0.03453

    To solve for the future (F) amount of the present investment (P),

    F = P x (1 + ieff) ^n

    where n is number of years.

    F = ($742) x (1 + 0.03453) ^15

    Thus, the answer is $1234.76.
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