Question

Suppose you deposit $1000 in a college fund that pays 7.2% interest compoundedannually. Find the account balance after 5 years.

Answer 1

Case: Compound Interest

Given:

deposit= $1000

rate= 7.2%

time= 5 years

Required: Find the account balance after 5 years

Method:

Step 1: Recall the Compound interest formula.

Amount, A is given as:

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

Step 2:

From the above, n=1 because the interest is compounded annually,

Hence plugging the values gives

`\begin{gathered} A=1000(1+(0.072)/(1))^(1*5) \\ A=1000(1.072)^5 \\ A=1415.71 \end{gathered}`

Final answer:

The account balance after 5 years is $1415.71