Question

Use the compound interest formula,     . kelly opened a savings account with $500 she received at eighth grade graduation 4 years ago. the account pays 2.5 percent compounded daily. how much should be in the account now? round to the nearest dollar.

Answer 1

The formula for calculating annual compound interest, including principal sum, is: A = P (1 + r/n)^(nt) Where: A = the future value of the investment P = the principal investment amout or the initial deposit r = the annual interest rate n = the number of times that interest is compounded per year t = the number of years the money is invested or borrowed. So we have that P = $500 r = 2.5% = 0.025, t = 4 years and n = 365 (since the interest is compounded daily). Plugging into the eqn we have A = 500 ( 1 + (0.025)/(365))^(365*4) A = $552.58

Answer 2

The answer is “$553”.

Kelly’s account pays = 2.5 percent compounded daily = 2.5/100 = 0.025

There are 365 days in one year, so

i = .025/365

so number of days = n = 4(365) = 1460

Amount = 500(1 + .025/365)^1460

=552.59 = $553