Question

if an amount of $5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly, what is the value of the investment after 10 years?

Answer 1

$8,240

Explanation:

We are given that,

Principle amount in the savings account, P = $5,000.

Rate of interest, r = 5% = 0.05

Time period, t = 10

Also, the interest is compounded monthly, n = 12

As, we now that the value of the investment is given by
`P(1+(r)/(n))^(nt)`

Thus, we have,

Investment Value =
`5000(1+(0.05)/(12))^(12* 10)`

i.e. Investment Value =
`5000(1+(0.05)/(12))^(12* 10)`

i.e. Investment Value =
`5000(1+0.00417)^(120)`

i.e. Investment Value =
`5000* 1.648`

i.e. Investment Value = $8,240

Hence, the investment amount after 10 years is $8,240.