



 
Ameeta, Since the annual interest rate is 6% the monthly rate is 6/12 = 0.5% or 0.5/100 = 0.005. Joanna invests $500 so at the end of the first month her return is
This is the amount she has to inverts at the beginning of the second month so at the end of the second month her return is
This is the amount she has to inverts at the beginning of the third month so at the end of the third month her return is
Can you see the pattern now? At the end of the 36^{th} month she will have $500 × (1.005)^{36}. Penny
Ameeta: If you work this out the way Penny Nom suggests, you will get a different answer than the $90 you got the first time. What you worked out is the _simple_ interest  that is, what Joanna would get if the interest was paid straight to her and not reinvested. If the interest is "compounded" that means that it is reinvested so in the second month she gets interest on the first month's interest,and so on. In the long run of course that yields more money. RD  


Math Central is supported by the University of Regina and The Pacific Institute for the Mathematical Sciences. 