Option 1 Invest $5,000 in a savings account at 6.6% interest compounded monthly. compound interest Option 1 amount earned at the end of 6 years It is Business Algebra

Expert Answers

An illustration of the letter 'A' in a speech bubbles

All you are trying to do here is to find what you get by investing at compound interest.  The formula for compound interest is

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

In this formula, A is the amount of money you have after t years.  P is the original amount of money invested, r is the annual interest rate expressed as a decimal and n is the number of times interest is compounded each year.

So now plug in the numbers that you have provided.

A = 5000(1+.066/12)^12*6

If you do the math correctly you will come out with $7421.29.  So your original $5000 investment will become $7421.29, which means that you earned $2421.29 in interest during the 6 years.

Approved by eNotes Editorial Team

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial