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If I add $\$1000$ to a bank account each month with the yearly interest of $2\%$ how much will I have in one year?

Answer says $\$12 111 $

I don't know how to get to that answer, can someone help me?

lulu
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user377761
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1 Answers1

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Look up the compound interest equation. The first month collects interest for $11$ or $12$ periods depending on whether you make the deposit at the start or end of the month. Each successive month draws interest for one less month. It would be a good exercise to make a spreadsheet that tracks the balance every month, adding the new deposits and interest. You will need that skill. The interest multiplies the balance by $(1+\frac {0.02}{12})$ because the period is $\frac 1{12}$ year.

Ross Millikan
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  • I tried it and I get 1000(((1.02^12)-1)/1.02)1.02 which is 13680.33.

    not correct, I think I should use monthly interest rate actually which is 1.02/12 but then I just get (1.02/12)^12 in the equation, which seems like a dead end.

     – user377761 Jan 15 '18 at 17:40
  • I gave you the factor for monthly interest in my answer. It is neither of the ones you quote. In your first you are giving $2%$ interest per month. In your second you are dividing the principle by $12$ as well as the interest. – Ross Millikan Jan 15 '18 at 17:48