Question

Robert Bernard deposited $1000.00 in a trust account on the day of his son's birth and every three months thereafter. If interest paid is 8% compounded quarterly, what will the balance in the trust account be before the deposit is made on the son's twenty-first birthday? Question 4 options: $218, 143.94 $200,788.32 $215,875.22 $432,875.78

Answer 1

The balance in the trust account before the son's twenty-first birthday is $215,875.22.

Step-by-step explanation:

To calculate the balance in the trust account before the deposit is made on the son's twenty-first birthday, we need to determine the number of compounding periods and use the formula for compound interest. In this case, the interest is paid quarterly and the son's twenty-first birthday is 21 years after the initial deposit.

First, we calculate the number of compounding periods. Since interest is paid quarterly, there are 4 periods in a year. So over 21 years, there are 4*21 = 84 compounding periods.

Next, we use the formula for compound interest:

A = P*(1+r/n)^(n*t)

Where A is the total balance, P is the principal amount, r is the interest rate, n is the number of compounding periods per year, and t is the number of years.

In this case, P = $1000, r = 8% = 0.08, n = 4, and t = 21.

So, the balance in the trust account before the son's twenty-first birthday is:

A = 1000*(1+0.08/4)^(4*21)

= $215,875.22