A person pays $2000 into an investment fund every six months, and it earns interest at a rate of 6% pa, compounded monthly. How much is the fund worth at the end of ten years?
A person pays $2000 into an investment fund every six months, and it earns interest at a rate of 6% pa, compounded monthly. How much is the fund worth at the end of ten years?
Answer: $55 586.38
Use the formula
.
If the rate is per year, then every month the rate is .
If it is being compounded monthly for years, then there are time periods.
A person pays $2000 into an investment fund every six months, and it earns interest at a rate of 6% pa, compounded monthly. How much is the fund worth at the end of ten years?
Answer: $55 586.38
$55,586.38 is correct IF the 1st deposit is made at BEGINNING.
The rate to be used is the semiannual rate equivalent to 6% cpd monthly,
which is determined this way:
(1 + r)^2 = 1.005^12 ; solve for r
LHS represents a rate r compounded semiannually, hence to power 2.
12 is meant to be 12; 12 months in a year.
(1 + r)^2 = 1.005^12
r = SQRT(1.005^12) - 1
Oh I see. So I got r = 0.03037... and if I were to sub it into the formula A = P(1 + r)^n , with n = 120 and p = 2000 I will get 72542.82. Is this what you mean? I'm still close to the answer but not there yet. Did I use the wrong formula?
Oh I see. So I got r = 0.03037... and if I were to sub it into the formula A = P(1 + r)^n , with n = 120 and p = 2000 I will get 72542.82. Is this what you mean? I'm still close to the answer but not there yet. Did I use the wrong formula?