ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$12712.31
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$12, 749.30
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$12, 657.59
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$12550.84
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Detailed explanation-1: -The monthly compound interest formula is used to find the compound interest per month. The formula of monthly compound interest is: CI = P(1 + (r/12) )12t-P where, P is the principal amount, r is the interest rate in decimal form, and t is the time.
Detailed explanation-2: -For this reason, lenders often like to present interest rates compounded monthly instead of annually. For example, a 6% mortgage interest rate amounts to a monthly 0.5% interest rate. However, after compounding monthly, interest totals 6.17% compounded annually.
Detailed explanation-3: -"12% interest compounded monthly” means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month.
Detailed explanation-4: -Compounded monthly means that the interest rate of the loan is applied in parts each month and the interest is added to the principal. For example, If a loan of $1, 000 has a 12% annual interest rate compounded monthly, that means that in month one, the loan is charged 1% interest and becomes $1, 010.