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a recent college graduate's gift from her grandparents is $25,000. how much will this provide at the end of each month (in $) for the next 12 months while the graduate travels? assume that money is worth 7.8% compounded monthly. (round your answer to the nearest cent.)

Sagot :

A recent college graduate received a $25,000 gift from her grandparents, which means that she will receive $27021.25 at the end of each of the following 12 months while she travels.

What do you mean by compounded?

Compounding is the process of combining different substances to create a new medicament. to create something by putting pieces, things, etc. together; construct: to combine elements of various previous plans to create a new one. The ability of an asset to produce earnings that, when reinvested or kept invested in the main asset, would produce additional earnings is known as compounding. The process through which interest is earned both on principal and the accrued interest increases the asset's value is known as compounding. Compound interest is another name for this phenomenon, which is a direct application of the time value of money (TMV) idea.

What Is the Difference Between Simple Interest and Compound Interest?

Simple interest just accrues interest on the principal amount invested or deposited. For example, $1,000 deposited at 5% simple interest would yield $50 annually. However, compound interest pays "interest on interest," so instead of receiving $50 the first year, you would receive $52.5 ($1,050 minus 0.05) the second year, and so on.

Briefing:

Therefore we can use the formula;

A=P(1+r/n )^nt

The problem gives us all values:

A = $25,000

r = 0.078 = 7.8%

n = 12 (monthly)

t = 1 year

Then,

A=25000(1+0.078/12 )^12

A=$27021.24525

Then, rounding to the nearest cent we get,

A=$27021.25

To know more about Compounded visit:

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