If Murphy puts $45,000 into an investment that earns 12% compounded monthly, and after three years he withdraws $30,000, how much money will the investment be worth seven years after the withdrawal?
A) $79,316
B) $49,506
C) $92,142
D) $69,202
E) $118,517

Question

Quizplus · Accepted Answer

First, calculate the value of the investment after three years using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($45,000), r is the annual interest rate (12%, or 0.12), n is the number of times that interest is compounded per year (12), and t is the time the money is invested for in years (3). This gives A = 45000(1 + 0.12/12)^(12*3) = $64,202. After withdrawing $30,000, the remaining amount is $34,202. Then, calculate the value of the remaining amount after seven more years using the same formula, which gives A = 34202(1 + 0.12/12)^(12*7) = $79,316.

If Murphy Puts $45,000 into an Investment That Earns 12