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Part 2: An amount of $1000 is invested into an account that pays 5% per annum compound interest. Interest is compounded monthly. 1 Calculate the amount of interest paid after the first month. 2 Find the value of the investment after the first month. 3 Continue this process for the second and third months.

Part 2: An amount of $1000 is invested into an account that pays 5% per annum compound interest. Interest is compounded monthly. 1 Calculate the amount of interest paid after the first month. 2 Find the value of the investment after the first month. 3 Continue this process for the second and third months.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA3: Time Value Of Money
Section: Chapter Questions
Problem 15E
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Part 2: An amount of $1000 is invested into an account that pays 5% per annum compound interest. Interest is compounded monthly. 1 Calculate the amount of interest paid after the first month. 2 Find the value of the investment after the first month. 3 Continue this process for the second and third months. 4 What do you notice about this sequence? What sort of sequence is it? 5 Write the general formula that can be used to find the amount of the investment after 2 months. 6 Use your formula to calculate the value of investment after two years. 7 Compare your answers from the final question of each part. Which investment is worth more; the simple interest or the compound interest?
Transcribed Image Text:Part 2: An amount of $1000 is invested into an account that pays 5% per annum compound interest. Interest is compounded monthly. 1 Calculate the amount of interest paid after the first month. 2 Find the value of the investment after the first month. 3 Continue this process for the second and third months. 4 What do you notice about this sequence? What sort of sequence is it? 5 Write the general formula that can be used to find the amount of the investment after 2 months. 6 Use your formula to calculate the value of investment after two years. 7 Compare your answers from the final question of each part. Which investment is worth more; the simple interest or the compound interest?
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