Question

To save for a car when he turns 18, Pascale deposited $500 each year into a savings account with a 7.5% interest rate compounded annually. Using the formula, what is the value of the account at the end of the fifth year?

$3,071.92
$3,122.00
$3,851.77
$4,140.65

Answer 1

Fv=500×(((1.075)^(5)−1)
÷(0.075)×(1.075))

Fv=3,122.01

Answer 2

Answer: Second option is correct.

Explanation:

Since we have given that

Initial amount deposited into a savings account each year = $500

Rate of interest compounded annually = 7.5%

Number of years = 5 years

So, Amount in the account at the end of the fifth year would be

`500((1+(7.5)/(100))^5-1)/((7.5)/(100))* (1+(7.5)/(100)))\\\\\\=500((1.075^5-1)/(0.075)* 1.075)\\\\=\$3122.00`

Hence, Second option is correct.