Question

If $300 is invested at a rate of 5% per year and is compounded quarterly, how much will the investment be worth in 20 years?

Use the compound interest formula A equals P times the quantity 1 plus r divided by n end quantity raised to the power of n times t..

$810.45
$515.28
$384.61
$109.67

Answer 1

(a) $810.45

Explanation:

You want the value of an investment of $300 earning 5% interest compounded quarterly for 20 years.

Compound interest

The compound interest formula tells you the value is ...

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

where P = 300, r = 0.05, n = 4, t = 20.

Using the given parameters in the given equation, you find the account value to be ...

A = $300(1 +0.05/4)^(4·20) ≈ $810.45

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Additional comment

The "rule of 72" tells you the account value will approximately double in a number of years equal to 72 divided by the interest rate percentage: 72/5 = 14.4 years. After 20 years, it will be worth more than that doubled amount, $600. This only leaves one reasonable answer choice.

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