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Compound Interest, SMB-016 MC

Mary invests $1200 for two years.

Interest is calculated at the rate of 3.35% per annum, compounding monthly.

The amount of interest she earns in two years is closest to

  1. `$6.71`
  2. `$80.40`
  3. `$81.75`
  4. `$83.03`
Show Answers Only

`D`

Show Worked Solution

`text{Annual interest rate}\ = 3.35% = 0.0335`

`text(Monthly interest rate)\ (r) = \frac{0.0335}{12}`

`text(Compounding periods)\ (n) = 2 xx 12 =24`

`FV(text{after 2 years})` `= PV(1+r)^n`
  `=1200(1 + \frac{0.0335}{12})^24`
  `=$1283.03…`

 
`text{Interest earned}\ =1283.03-1200=$83.03`

`=> D`