Question

Angela has just received an insurance settlement of $22,500. she wants to save this money until her daughter goes to college. if she can earn an average of 4.7 percent, compounded annually, how much will she have saved when her daughter enters college 6 years from now?

Answer 1

To find the compounded amount, we start with the interest rate, exponentiate that over the number of periods, and multiply that figure by the starting value. So, in this case, we have 4.7% interest, or 1.047, applied to a starting balance of $22,500 over a compounding period of 6 years. Thus, the value in 6 years is $22500*(1.047^6), or $29,639.