Question

A young man is the beneficiary of a trust fund established for him 21 years ago at his birth. If the original amount placed in trust was $10,000, how much will he receive if the money has earned Interest at the rate of 5%/year compounded annually ,Compounded quarterly and Compounded monthly?

Answer 1

The young man's trust fund growth depends on the compounding frequency of the 5% interest rate. By applying the compound interest formula A = P(1 + r/n)^(nt), the final amount can be calculated for annual, quarterly, and monthly compounding frequencies based on the original $10,000 principal over 21 years.

Step-by-step explanation:

Compound Interest Calculations

To calculate the amount the young man will receive from the trust fund, we need to apply the compound interest formula for each compounding frequency. The formula for compound interest is A = P(1 + r/n)^(nt), where:

• P is the principal amount (the initial amount of money)
• r is the annual interest rate (decimal)
• n is the number of times that interest is compounded per year
• t is the time the money is invested for, in years

For the original amount of $10,000 at a 5% interest rate:

1. Compounded annually: n = 1
2. Compounded quarterly: n = 4
3. Compounded monthly: n = 12

Therefore, the calculations would be:

• Annually: A = 10,000(1 + 0.05/1)^(1*21)
• Quarterly: A = 10,000(1 + 0.05/4)^(4*21)
• Monthly: A = 10,000(1 + 0.05/12)^(12*21)

These calculations will give you the final amount for each compounding frequency.