A total of $120 is invested monthly with an annual compound interest rate of 6%, compounded monthly. Which of the following calculations explains how you can find the principal amount at the beginning of the second month?

Answer 1

To find the principal amount at the beginning of the second month, we can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:
A = Amount at the end of the investment period
P = Principal amount (initial investment)
r = Annual interest rate (in decimal form)
n = Number of times interest is compounded per year
t = Time in years

In this case,
P = $120
r = 6% = 0.06
n = 12 (compounded monthly)
t = 1/12 (as we are calculating for the first month)

Plug in the values into the formula:

A = 120(1 + 0.06/12)^(12 * 1/12)
A = 120(1.005)^1
A = 120(1.005)
A = 120.6

Therefore, the principal amount at the beginning of the second month is $120.