Question

You plan to save $5000 in an account which pays 4.5% interest compounded monthly.

How much money will you have at the end of 3 years? Use your FORMULA from your notes.
Make sure to LABEL each variable. You must show your work.

Answer 1

We can use the formula for compound interest to calculate the amount of money we will have at the end of 3 years:

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

Where:

A = the amount of money we will have at the end of 3 years

P = the principal (the initial amount we start with)

r = the interest rate (as a decimal)

n = the number of times the interest is compounded per year

t = the number of years

Plugging in the given values, we get:

A = 5000(1 + 0.045/12)^(12×3)

A = 5000(1.00375)^36

A ≈ $5,622.16

Therefore, we will have approximately $5,622.16 at the end of 3 years.