Question

Write an equation that would help you calculate the future value of a savings account that pays 5.2% interest compounded daily if the present value is $10,000. You will keep the savings account for 20 years and make no payments into it.

Answer 1

V = 10,000( 1 + 0.052/365)^(20*365)

Explanation:

Take the number of days in a year to be 365.

I am assuming that 5.2% is the annual interest.

The equation is:

V = 10,000( 1 + 0.052/365)^(20*365) where V is the amount after 20 years.

That works out to $28,290.07.

Answer 2

Explanation:

The compound amount formula is A = P(1 + r/n)^(n*t), where n is the number of times interest is compounded per year and t is the number of years.

We could let n = 365 (since there are 365 days in each year). Then,

A = P(1 + r/365)^(365*t).

Then, in this case, A = $10,000(1 + 0.052/365)^(365*20), or

A = $10,000(1 + 0.000142)^7300, or

A = $10,000(2.829)

A = $28,290.07