Question

Consider a bank account that pays 6% annually with monthly compounding. You made a $1,000 deposit in this account exactly 20 years (240 months) ago.

1）Find the account's current balance in dollars and cents.

2）how much interest-on-interest have you earned? Express your answer in dollars and cents.

Answer 1

1). Initial deposit = $1000

Calculating the account's current balance:-

where, Invested amount = $ 1000

r = Interest rate annually = 0.06

m = no of times compounding in a year = 12

n = no of years = 20

Future Value = $ 3310.20

So, Current account balance is $ 3310.20

2) Interest-on-Interest =

where, Invested amount = $ 1000

r = Interest rate annually = 0.06

m = no of times compounding in a year = 12

n = no of compounding periods = 20

= $ 2310.20

So, interest-on-interest have you earned is $ 2310.20

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