Answer:
Explanation:
The formula for calculating the effective interest rate is expressed as
R = (1 + i/n)^n - 1
where
R is the effective interest rate
i is the nominal rate
n is the number of compounding periods in a year
From the information given,
n = 12 because it was compounded monthly
i = 3.2% = 3.2/100 = 0.032
Thus,
R = (1 + 0.032/12)^12 - 1
R = 0.03247
Multiplying by 100, it becomes 0.03247 x 100
Effective interest rate = 3.25%
We would apply the formula for calculating compound interest which is expressed as
A = a(1 + r/n)^nt
where
a is the principal or initial amount
t is the number of years
A is the final amount after t years
From the information given,
A = 1000
a = 600
n = 12
We want to find t
By substituting these values into the formula, we have
1000 = 600(1 + 0.032/12)^12t
1000/600 = (1.00267)^12t
Taking natural log of both sides, we have
ln (1000/600) = ln (1.00267)^12t = 12tln(1.00267)
12t = [ln (1000/600)]/ln (1.00267) = 191.5758
t = 191.5758/12
t = 16
It takes 16 years for the amount to reach $1000