Question

You have decided to start saving for college and open up a 529 account. You invest $5,000 into the account at a 3% interest rate compounded monthly. How much money will you have after 6 years? (5 points)

Answer 1

Approximately $5984.74

Explanation:

The general formula for compound interest is

`A(t)=P(1+(r)/(n))^n^t`, where P is the principal (amount you invest), r is the interest rate, n is the number of compounding periods, and t is the time in years.

We simply plug everything into the formula including 6 for t.

Also, our n is for this problem is 12 since there are 12 months in a year and there are thus 12 compounding periods when something is compounded monthly:

`A(6)=5000(1+(0.03)/(12))^(^1^2^*^6^)\\A(6)=5000(1.0025)^7^2\\A(6)=5984.742338=5984.74`