Interest compounded monthly on a $10,000 principal amount at 18% for two years is
A) $1,800.
B) $3,600.
C) $3,924.
D) $4,295.

Question

Quizplus · Accepted Answer

The correct answer is found by calculating the compound interest using the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($10,000), r is the annual interest rate (18% or 0.18), n is the number of times that interest is compounded per year (12, since it's compounded monthly), and t is the time the money is invested for in years (2). Plugging in the numbers: A = 10000(1 + 0.18/12)^(12*2) = $12,295. The interest earned is the total amount minus the principal: $12,295 - $10,000 = $2,295. However, the correct calculation for the interest earned over two years, considering monthly compounding, should actually result in a higher amount than any of the options provided, indicating a mistake in the calculation explanation here. The correct approach still involves the formula for compound interest, but the precise calculation should yield an answer closest to the options given, with the correct methodology pointing towards option D as the closest match to how compound interest would accumulate over two years at an 18% annual rate, compounded monthly.

Interest Compounded Monthly on a $10,000 Principal Amount at 18