A savings account earns 4% interest a year. When compounded monthly what would a $200 deposit earn in 3 years? (round to the nearest dollar)

A. 225
B. 230
C. 275
D. 245

A. 225

Step-by-step explanation:

We would apply the formula for determining compound interest which is expressed as

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

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = $200

r = 4% = 4/100 = 0.04

n = 12 because it was compounded 12 times in a year.

t = 3 years

Therefore,

A = 200(1 + 0.04/12)^12 × 3

A = 200(1 + 0.0033)^36

A = 200(1.0033)^36

A = $225

5/12, or 5: 12

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