Question

You invest $2,000 in an account that is compounded annually at an interest rate of 5%. You never withdraw money from the account. How much money will be in the account after 4 years?

Answer 1

The following formula for compound interest applies:

`A=P(1+r)^(t)`
where A is the amount after t years, P is the principal and r is the annual interest rate expressed as a decimal. Plugging the given values into the formula gives:

`A=2000(1+0.05)^(4)`
The amount after 4 years is therefore $2,431.01