Question

You have savings of $100. You plan to save another $100 at the beginning of each year for 5 years. The account pays annual interest of 8 percent, compounded quarterly. The ending balance (principal plus interest) will be $ at the end of 5 years.

Answer 1

The ending balance (principal plus interest) at the end of 5 years can be calculated using the compound interest formula. By substituting the given values into the formula, we find that the ending balance will be approximately $148.62.

Step-by-step explanation:

The ending balance (principal plus interest) at the end of 5 years can be calculated using compound interest formula:

Future Value = P(1 + r/n)^(nt)

Where:

• P = Principal amount = $100
• r = Annual interest rate = 8%
• n = Number of times interest is compounded per year = 4 (quarterly)
• t = Number of years = 5

By substituting the values into the formula, we get:

Future Value = $100(1 + 0.08/4)^(4*5)

Future Value = $100(1 + 0.02)^20

Future Value = $100(1.02)^20

Using a calculator or spreadsheet, we find that the ending balance will be approximately $148.62.