Question

Rory invests $1,500 into a savings account which earns 8% per year. In 10 years, how much will Rory's investment be worth if interest is compounded quarterly ( 4 times a year )?

Answer 1

After using the compound interest formula, we can determine that Rory's $1,500 investment at an 8% annual interest rate compounded quarterly will grow to $3,299.22 after 10 years.

Step-by-step explanation:

When Rory invests $1,500 into a savings account which earns 8% per year compounded quarterly, we can calculate the future value of the investment using the formula for compound interest:

FV = P (1 + r/n)^(nt)

Where:

• FV is the future value of the investment,
• P is the principal amount ($1,500),
• r is the annual interest rate (0.08 for 8%),
• n is the number of times the interest is compounded per year (4 for quarterly), and
• t is the number of years the money is invested (10).

Using the formula, we calculate:

$1,500 (1 + 0.08/4)^(4*10) = $1,500 (1 + 0.02)^40

After simplifying, we find that Rory's investment will be worth:

$3,299.22

This demonstrates the power of compound interest in increasing the value of an investment over time.