You invest $15,000 today, compounded monthly, with an annual interest rate of 8.25%. What amount of interest will you earn in one year?
A) $1,285.38
B) $1,295.38
C) $1,298.98
D) $1,723.23
Answer: A
Explanation: A) With PV = $15,000, APR = 8.25%, C/Y = 12, periodic interest rate = r = 0.006875, we begin by taking (1 + periodic rate) to the power of C/Y. Doing this gives: (1.006865)12 = 1.085692. Multiplying this number by PV gives $16,285.38. Thus, the interest earned is:
$16,285.38 - $15,000 = $1,285.38.
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