Question

Which of the following equations will find the total account balance of the investment below?

A. A = (5000)(0.025)(10)
B. A = 5000(1 + 0.025)^10
C. A = (5000) (2.5)(10) + (5000)
D. A = (5000)(0.025)(10) + 5000

Answer 1

To calculate the total account balance of an investment with compound interest, use the formula A = Principal(1 + interest rate)^time. For a $5,000 investment at a 2.5% rate compounded annually for 10 years, the correct formula is A = 5000(1 + 0.025)^10. The correct option in the final answer is Option B.

Step-by-step explanation:

To find the total account balance of an investment with compound interest, we should use the formula for compound interest which is Principal(1 + interest rate)^time. Therefore, if an investment of $5,000 is made and it earns an interest rate of 2.5% compounded annually over 10 years, the correct equation to find the total account balance after 10 years would be expressed as:

A = Principal(1 + interest rate)^time

By this formula, we can calculate the answer as:

A = 5000(1 + 0.025)^10

Hence, the correct option in the final answer is Option B.