Suppose that $ 5 000 is invested at 3.9 % annual interest rate, compounded monthly. How much money will be in the account in (A) 8 months? (B) 24 years?

(A) $5,131.5

(B) $12,729.5

Explanation:

The interest earned on the value of interest earned before is the compounded interest. Compounding is the reinvestment of the amount earned before and take return over it too.

As per given data

Invested amount = $5,000

Interest rate = 3.9%

Interest is compounded monthly

Monthly rate = 3.9% / 12 = 0.325%

Formula for the accumulated amount of investment

A = P ( 1 + r )^n

Accumulated Money when $5,000 is

(A) Invested for 8 months

A =  $5,000 ( 1 + 0.325% ) ^8

A = $5,131.5

(b) Invested for 24 years or 288 months (24 x 12)

A =  $5,000 ( 1 + 0.325% ) ^288

A = $12,729.5

A. $6,333.85

B.  $10,163.97

Explanation:

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

Where:

A     =final amount

P=initial principal balance

r=interest rate

n=number of times interest applied per time period

t=number of time periods elapsed

Therefore in 8 months

P=$5000

r=3.9%

n=1

t=8 months

A= P (1+r/n)^nt = 5000 x (1+(0.03/1)^1 x 8 = $6,333.85

Therefore in 24 months

P=$5000

r=3.9%

n=1

t=24 months

A= P (1+r/n)^nt = 5000 x (1+(0.03/1)^1 x 24 = $10,163.97

answer; a set of mutual funds with similar risk characteristics to your mutual fund;

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