On April 1, 2012, Tim deposited $500 in a new bank account at the annual interest rate of 24 percent compounded monthly. If no additional deposits or withdrawals were made and the interest were credited at the last day of each month, what was the amount of money in the bank account on June 1, 2012?
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Wait, is the answer $540? I got $540.8 and none of the choices match exactly... am I supposed to round here?
Compounded monthly means three credits (Apr, May, Jun), not two. Redo it.
Yeah I tripped on the same thing. June 1 means interest credited through end of May.
Tricky wording. The 24% annual divided by 12 gives 2% per month, but I almost used it as a simple 24% over the whole period. Got 540.4 after compounding.
Same trap. I did 500 * 1.24^(2/12) at first and got lost in decimals.
Thanks, this one made me slow down and read 'credited at the last day of each month' carefully.
Is this really 555-605? Felt more like a 500-level if you just remember monthly compounding.
The arithmetic gets annoying though, 1.02^3 isn't clean.
What it tests
Your ability to compute percentage change, percentage of a whole, and to work backwards from a final value.
Common trap
Treating successive percentage changes as additive — a 10% rise then a 10% fall is not back to the start.