Question

(Lesson 30) Directions - Identify the key components, create a compound interest equation, and answer the questions.

You invest $4000 into an account that compounds interest on a quarterly basis at 3%. How much money will you have after 5 years? Compound Interest formula:
A=P(1+1)
a) P=
b) r=
()n-
d)t =
e) Write the compound interest equation that would be used to solve this problem.
f) Value after 5 years -
(round to two decimal places)

Answer 1

$4644.74

Explanation:

The compound interest formula is A = P(1+r/n)^(nt), where

A is the final amount,

P is the initial balance

r is the interest rate (in decimal form)

n is the number of interest payments in the time period t

t is the number of time periods, in years

For this problem:

A is the unknown

P = $4,000

r = 0.03

n = 4 (paid quarterly or 4 times/year)

t = 5 (the elapsed time periods (in years))

A = P(1+r/n)^(nt)

A = ($4000)(1+(0.03)/4)^(4*5)

A = ($4000)(1+(0.03)/4)^(4*5)

A = $4644.74