Question

A local credit union is offering a special CD for kids under 10 that pays 3.9% interest compounded monthly. If you open an account for your 5-year-old and deposit $500 in it, how much will be in the account after 5 years?

Answer 1

After 5 years, the account will have approximately $595.47.

Step-by-step explanation:

To calculate the future value of the investment after 5 years, we can use the formula:

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

Where:

FV is the future valueP is the principal amountr is the annual interest rate (as a decimal)n is the number of times the interest is compounded per yeart is the number of years

In this case, the principal amount (P) is $500, the annual interest rate (r) is 3.9% (or 0.039 as a decimal), the interest is compounded monthly (n = 12), and the investment period is 5 years (t = 5).

Plugging these values into the formula:

FV = $500(1 + 0.039/12)^(12*5)

Calculating this expression will give us the future value of the investment after 5 years.