Question

You deposit $1,000 into a five year certificate of deposit (a type of savings account with a fixed rate of interest) earning 1% per year that compounds interest annually. After five years, the balance in your account will be...

a. Exactly $1,050
b. More than $1,000 but less than $1,010
c. More than $1,050
d. More than $1,010 but less than $1,030
a. Exactly $1,050
b. More than $1,000 but less than $1,010
c. More than $1,050
d. More than $1,010 but less than $1,030

Answer 1

The balance in the account after five years will be between $1,050 and $1,060.

Step-by-step explanation:

To calculate the balance in the account after five years, we can use the formula for compound interest. The formula is A = P(1 + r/n)^(nt), where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

In this case, the principal amount is $1,000, the annual interest rate is 1% (or 0.01), the interest is compounded annually, and the time period is 5 years. Plugging in these values, we get:

A = 1000 * (1 + 0.01/1)^(1*5) = $1,051.01.

Therefore, after five years, the balance in your account will be more than $1,050 but less than $1,060, so the correct answer is option b. More than $1,000 but less than $1,010.