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An investment is advertised as returning 0.6% every month, compounded monthly. If $10,000 is invested, the growth can be modeled by the equation A(t) = 10,000(1.006)^12t. What is the equivalent annual growth rate for this investment (rounded to the nearest tenth of a percent) and what is it worth (rounded to the nearest thousand dollar) after 20 years?

Hint: Find the value of 1.006^12 on your calculator.

 

A.) 5.0% and $42,000

B.) 7.2%, and $11,000

C.) 7.4% and $42,000

D.) 7.2% and $40,000

please help im bad at this :(

 Feb 18, 2016
 #1
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We need to solve this, stephdp......

 

(1.006)^(12 *20)  = (1 + r)^20

 

(1.006)^240  = (1 + r)^20    take the log of both sides

 

log (1.006)^240  = log (1 + r)^20      and we can write

 

240*log(1.006)  = 20 log(1 + r)    divide both sides by 20

 

12*log(1.006)  = log(1 + r)

 

And this says that

 

10^[12*log(1.006)]  = 1 + r     subtract 1 from both sides

 

10^[12*log(1.006)] - 1  = r    =  about 7.4%

 

And in 20 years, we will have

 

10000(1 + .074)^20  = about $41, 695    [round to $ 42000]

 

 

So....it looks like  (C)  is the correct choice

 

 

cool cool cool

 Feb 18, 2016
 #2
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Since the rate of growth is .6% per month, therefore the equivalent annual growth rate is: 1.006^12=

1.0744 -1 X 100=7.44%.

After 20 years, the investment of $10,000 grows to $42,026=~$42,000. So, C.) is your answer.

 Feb 18, 2016

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