Zenda deposited $1,200 in a savings account that pays 6.5% interest,

Question

compounded monthly. What is the balance in her account at the
beginning of the third month?
a. $1,213.04
b. $1,511.65
c. $1,206.50
d. $1,296

Answer 1

To solve this problem, we need to use the compound interest formula:

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

Where:
- A is the final amount
- P is the principal (initial amount)
- r is the annual interest rate (as a decimal)
- n is the number of times the interest is compounded per year
- t is the time (in years)

In this case, P = $1,200, r = 0.065 (6.5% as a decimal), n = 12 (monthly compounding), and t = 2/12 (two months, expressed in years as 2/12). Plugging these values into the formula, we get:

A = 1200(1 + 0.065/12)^(12/6)
A = 1200(1.005416667)^2
A = $1,213.04

Therefore, the answer is (a) $1,213.04.