Question. Interest Rate: 4% monthly Starting Balance: 124 Time Passed: 4 months How much interest has accrued if calculated as compound interest? What is the new total balance?
Options:
(A) 21 & 145
(B) 22 & 146
(C) 23 & 145
(D) 20 & 140
(E) None
Answer. (A)
What step-by-step reasoning justifies that answer?
Reasoning: Compound Interest: Total Balance = P(1 + R)T P = principle = starting balance = $124 R = interest rate = 4% T = time = 4 years Total balance = principle (1 + interest rate)time = 124 (1 + (4 / 100))4 = 145 Interest accrued = total balance - starting balance = 145 - 124 = 21