Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year?
A) $12,278.86
B) $12,330.01
C) $13,330.02
D) $15,917.13

Question

Quizplus · Accepted Answer

The tenant will pay $12,000 in rent over the year ($1000 x 12 months). If the landlord deposits the rent check into an account earning 5% interest compounded monthly, then the effective annual interest rate is approximately 5.12% ((1 + 0.05/12)^12 - 1). Using the formula for compound interest, the tenant will have approximately $12,330.01 in their savings account at the end of the year.

Suppose That a Landlord Is Interested in Renting Out a Two-Bedroom