Given:
To save money for future house, a couple places $4,000 in an interest bearing account every month. The account pays 9% annual interest, compounded monthly.
Required:
How much will the account be worth 8 years after it is opened.
Explanation:
We know the formula
[tex]\begin{gathered} A=P(1+\frac{r}{n})^{nt} \\ \text{ Where, P = Principal amount} \\ \text{ r = annual rate } \\ \text{ n = compound } \\ \text{ t = time} \end{gathered}[/tex]
We have P = 4000, r = 0.09, n = 12 and t = 8 years
Now,
[tex]\begin{gathered} A=4000(1+\frac{0.09}{12})^{(12\times8)} \\ A=4000(1+0.0075)^{96} \\ A=8,195.68 \end{gathered}[/tex]
Answer:
The total amount, principal plus interest with compound interest on a principal of $4,000 at a rate of 9% per year compounded 12 times per year over 8 years is $8,195.68
