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Saving $5.00 a month for thirty years builds $1,800.00 with no interest, but $2,463.63 in an account paying 2 percent compounded monthly. How much of the ending balance came from interest?
A$463.63
B$600.00
C$663.63
D$863.63
Answer & Solution
Correct answer: C. $663.63
1. Deposits of $5.00 a month for thirty years total $5.00 times 12 times 30, which is $1,800.00.
2. That $1,800.00 is the money the saver put in, with no earnings attached.
3. The account paying 2 percent compounded monthly ends at $2,463.63.
4. Interest is the ending balance minus the deposits.
5. $2,463.63 minus $1,800.00 gives $663.63.
6. $463.63 subtracts $2,000.00 instead of $1,800.00, a misread of the deposits.
7. $600.00 is ten years of deposits, not interest at all.
_Source: FDIC Money Smart for Adults (September 2018), Module 5: Your Savings, section Interest Combined with Regular Savings of $5.00 per Month_
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