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

$942.27

Step-by-step explanation:

The applicable formula for this case is A = p x ( 1 + r) ^ n

Where A is the amount after 5 years

p = Principal amount: $500

r = Interest rate : 8 % or 0.08 per year.

quarterly interest rate = 0.08/4 = 0.02

n = number of period : 8 year or 32 quarters (8 years x 4 )

A = $500 x (1 + 0.02) ^32

A= $500 x (1.02)^32

A =$500 x 1.88454

A=$942.27

Amount after five years will be $942.27