First, we recall that for simple interest,
In our case, we know the future value is $2400, that the annual rate is
10%, and the time is 2 years. We want to know the principle .
Since both the rate and the time are given in years, all our units match and
there is no need for conversion. Thus, we need to solve
Our principle is $1000.
Since the account is compounded monthly, our periodic interest rate is
(there are 12 months in a year). We also need to express
our time in months, and 3 years is 36 months. Thus, the amount is expressed
Since we want to double our money, the future value should be $2000. As
above, the periodic rate is
, the principle is $1000, and
the time is in months. Thus, we need to solve
(Note that on the original quiz, the correct answer had a typo, so everyone got full credit on this problem, no matter which choice they picked. Duh.)