Question

An investment of $6,599.20 earns 4.2% interest compounded monthly over 7 years. Approximately how much interest is earned on the investment?
a.
$2,250.96
b.
$4,308.21
c.
$6,762.59
d.
$8,850.20

Answer 1

Use A = P(1 + r/n)^{nt} with P = 6599.20, r = 0.042, n = 12, t = 7.

Monthly rate = 0.042/12 = 0.0035, nt = 84.
A = 6599.20(1.0035)^{84} ≈ 6599.20(1.3411) ≈ 8850.16.

Interest ≈ 8850.16 − 6599.20 = 2250.96.

Answer: a. $2,250.96