Question

Elliott wants to have money set aside for a rainy day, so he invests $2,400 into a savings account that pays 1.3% annual interest, compounded monthly. After one year, how much interest will Elliott have earned? Round each month's interest to the nearest cent. (See WB Ch. 1 Example 1.5)

Answer 1

Answer:

$31.39

Explanation:

First, calculate the value which he will be getting after one year, on investment made by him today.The investment made today will give him 1.3% annual interest, compounded monthly.

Future value=Amount invested today(1+i/n)^n

Amount invested today=$2,400

i=interest per annum=1.3%

n=number of periods involved=12

Future value=2,400(1+1.3%/12)^12=$2431.39

Interest earned=$2431.39-$2,400=$31.39