Question

Michael invests his savings of $250,000 into a retirement savings account. His account has an interest rate of 4.2% that is compounded annually. If he plans to leave the money for 20 years, what will his new balance be?

a) $461,817.50
b) $482,546.35
c) $548,743.02
d) $576,912.78

Answer 1

To calculate the new balance after 20 years, use the formula for compound interest.

Step-by-step explanation:

To calculate the new balance after 20 years, we can use the formula for compound interest:

Future Value = Principal * (1 + Interest Rate/Number of Compounding Periods)^(Number of Compounding Periods * Time)

Plugging in the values, we get:

Future Value = $250,000 * (1 + 0.042/1)^(1 * 20)

Simplifying this equation gives us a future value of $461,817.50. Therefore, the correct answer is (a) $461,817.50.