Question

Question #7330e

Answer 1

Yearly compounding at 8% interest after 10 years: $2158.92
Monthly compounding at 8% interest after 10 years: $2219.64

Explanation:

Yearly compounding:

`$1000 * (1 + .08)^10 = $2158.92`

$1000 = initial deposit
1 + .08 = 8% interest rate on that deposit.
10 = number of times the interest is compounded over 10 years

Monthly Compounding:

`$1000 * (1 + .08/12 )^120 = $2219.64`

$1000 = initial deposit
1 + .08/12 = 8% interest rate split over 12 months
120 = number of times interest is compounded over 10 years.

Before I made an error: instead of compounding the interest 120 times under monthly compounding, I compounded it 240 times. Error is corrected.