Question

On the day you have your first child, you deposit $2500 into a savings account that earns 6% interest compounded quarterly. How much will you have in the account after 18 years? Round to the nearest cent.

Answer 1

To calculate the amount in the savings account after 18 years, use the formula for compound interest: A = P(1 + r/n)^(nt). Substituting the given values, the amount is approximately $7,158.11.

Step-by-step explanation:

To calculate the amount in the savings account after 18 years, we can use the formula for compound interest:

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

Where:

A = Final amount

P = Principal amount (initial deposit)

r = Annual interest rate (in decimal form)

n = Number of times interest is compounded per year

t = Number of years

Given:

P = $2500

r = 6% = 0.06

n = 4 (quarterly compounding)

t = 18 years

Now, let's substitute the given values into the formula:

A = 2500(1 + 0.06/4)^(4*18)

Simplifying the equation:

A = 2500(1.015)^72

Using a calculator to evaluate the expression:

A ≈ $7,158.11

Therefore, the amount in the savings account after 18 years will be approximately $7,158.11.