Given that the account is compounded annually, the formula for this information will be given by:
A=p(1+r/100)^nt
p is the principle, r is the rate, n is the number of terms, t is the time
a] The formula for the amount she will earn t years from now will be given as follows:
p=$500, r=6%, n=12
hence:
A=500(1+6/1200)^(12t)
Simplifying the above we get our formula:
A=500(1.005)^(12t)
b] Using the formula, the amount that Martha will have 1 year from now will be given by:
A=500(1.005)^(12t)
but t=1, plugging in the value in the formula and simplifying we obtain.
A=500(1.005)^(12*1)
A=$530.84
c]Effective annual rate is given by:
R=(1+i/n)^n-1
R-effective annual rate
i=stated rate
n=compounding period
From the information given:
R=(1+6/1200)^12-1
R=0.062~6.2%
