Question

Katie opened a savings account and deposited $500.00 as principal. The account earns 7%interest, compounded monthly. What is the balance after 7 years?

Answer 1

To answer this question, we will use the following formula for monthly compounded interest:

$F=P(1-\frac{r}{12})^{12t},$

where F is the final balance, P is the principal amount, r is the interest rate as a decimal, and t is the number of years.

Substituting P=500, r=0.07, and t=7, we get:

$F=500(1-\frac{0.07}{12})^{12\times7}.$

Simplifying the above result, we get:

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