Question

You plan to set aside $500 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

Answer: $742.97

Explanation:

The ending balance (principal plus interest) is known an compound amount.

the formula to calculate the compound amount after t years compounding quarterly , is given by :-

`A=P(1+(r)/(4))^(4t)`

, where r= rate of interest ( in decimal)

t= time ( in years)

P= Principal amount.

As per given , we have

P= $500

t= 5 years

r= 8%=0.08

Substitute theses values in the formula, we get

`A=500(1+(0.08)/(4))^(4(5))`

`A=500(1+0.02)^(20)`

`A=500(1.02)^(20)`

`A=500(1.48594739598)`

`A=742.97369799\approx742.97` [To the nearest cent]

Hence, the ending balance will be $742.97 at the end of 5 years.