Question

In: Finance

Suppose you deposited $50,000 in a bank account that pays 8.25% with monthly compounding. How much...

Suppose you deposited $50,000 in a bank account that pays 8.25% with monthly compounding. How much would be in the account after 7 months?

Solutions

Expert Solution

Calculation of Return on investment after 7 months Compounded Monthly
Per the information provided in the question, we noted that
Present value of amount deposited (p) = $50,000
Return on investment (r) =8.25% (or) 0.0825
No. of times interest is compounded (n) =12, (i.e. Being monthly compounding hence 12 times per year)
The period for which amount is invested (t) = 7/12 (Being invested for 7 months)
The future value of investment (FV) = ?
Therefore Return on investment
FV = P(1+r/n)^tn
FV = 50,000(1+0.0825/12)^(7/12)*12
FV = 50,000 (1+0.006875)^7
FV = 50,000 (1.006875)^7
FV = 50000(1.049129)
Hence FV = $52,456.45

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