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Suppose you deposit $1000 in a college fund that pays 7.2% interest compounded annually. Find the account balance after five years

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Final answer:

To find the balance after five years on a $1000 deposit with 7.2% interest compounded annually, use the formula A = P(1 + r/n)^(nt). The final balance would be $1419.

Step-by-step explanation:

When you deposit $1000 in a college fund that pays 7.2% interest compounded annually, to find the account balance after five years, you can use the formula for compound interest:

A = P(1 + r/n)nt

Where:

  • A is the amount of money accumulated after n years, including interest.
  • 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.

Plugging in the given values:

  • P = $1000
  • r = 7.2% = 0.072
  • n = 1 (since it's compounded annually)
  • t = 5 years

The equation becomes:

A = $1000(1 + 0.072/1)1*5

A = $1000(1 + 0.072)5

A = $1000(1.072)5

A = $1000 * 1.419

A = $1419

Therefore, the account balance after five years would be $1419.

User Shahid Ghafoor
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