5. Linda puts $100 in the bank getting 6% annual interest compounded monthly. If she leaves it there for 15 years, how much will it be worth?

We use the formula

A = P(1 + r/m)mt


P = 100

r = .06

m = 12

t = 15

If you just punch

A = 100(1 + .06/12)^(12x15)

where "^" denotes the power button on your calculator, you will get the correct answer of


rounded off to the nearest cent. You may have to hit the multiplication button between the 100 and the parentheses, but many of the newer calculators will know to multiply the number in front of the parentheses times the amount inside the parentheses.

In this case the periodic interest comes out even. One could simplify the calculation to

A = 100(1.005)^180

by doing the arithmetic inside the parentheses in your head. However, if when you compute the periodic interest by dividing r/m, if the decimal does not terminate in a few places, it is advisable to punch in the full formula rather than punching in a rounded off approximation for the periodic interest rate. Using a rounded off approximation will give you a rounded off approximation of the final answer, and that could differ from the correct answer by several cents or even several dollars.