You put $500 in a savings account which earns compound interest at a rate of 0.2% per month. If you don't make any deposits or withdrawls, how much will you have in your account in 10 years (120 months)? Round your answer to the nearest whole cent.
The amount is $510.12 and the interest is $10.12.
Explanation
STEP 1: Convert 120 months into years.
120 months =12012 years=10 years
STEP 2: To find amount we use formula:
A=P(1+rn)n⋅t
A = total amount
P = principal or amount of money deposited,
r = annual interest rate
n = number of times compounded per year
t = time in years
In this example we have
P=$500 , r=0.2% , n=12 and t=10 years
After plugging the given information we have
AAAA=500(1+0.00212)12⋅10=500⋅1.000167120=500⋅1.02024=510.12
STEP 3: To find interest we use formula A=P+I, since A=510.12 and P = 500 we have:
A510.12II=P+I=500+I=510.12−500=10.12
