Question

Suppose that you invest 7,000$ at 6% interest , compound quarterly, for 5 years, use table 11-1 to calculate the compound interest $ on your investment. How do i solve this?

Answer 1

Given the word problem, we can deduce the following information:

1.

Principal Amount=$7,000

Interest rate = 6%

Time= 5 years

2. The investment is compounded quarterly so n or number of times interest applied per time period is 4.

To determine the final value, we can use the compound interest formula:

`A=P(1+(r)/(n))^(nt)`

where:

A= Final amount

P= Principal amount

r=interest rate

n= number of times interest applied per time period

t= time

But based on the given table, the value of 5 periods at 6% is 1.33823 so we use this instead and multiply it with the Principal amount. So,

`\begin{gathered} A=P(1.33823) \\ =(7000)(1.33823) \\ \text{Calculate} \\ A=9,367.61 \end{gathered}`

Therefore, the answer is $9,367.61.