Question

You save $500 in a retirement account at age 25. it increases an average of 10% per year until you are 65. which formula and result indicates how much money you will have in this account at age 65?

a.500 x (1 + 0.10) ^ (65 - 25) = $22,629.63b.500 x (1 + (0.10 x (65 - 25)) = $2,500 submit

Answer 1

Any amount deposited in a bank at today will follow the compound interest formula for a period of time to multiply the amount of money deposited over time. Here too we can use the same formula: i.e

Amount after certain time = Principle * (1 + rate of interest/ number of installments in a year)^( number of installments in a year * time of deposit)

So, the correct formula for the amount at the age of 65 will be:

A = 500 * (1+0.1*/1)^(1*(65-25)) = 500 * (1+0.1/1)^(40*1) = $22,629.63 is the correct answer.