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If Juan invests $20,000 in a savings bond that pays 7.5 % annual interestcompoundedmonthly, what will the bond be worth in five years?

User Roarkz
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1 Answer

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We would apply the formula for determining compound interest which is expressed as

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

where

A = total amount after t years

P = principal or initial amount

r = interest rate

n = number of compoundings per year

t = number of years

From the information given,

P = 20000

r = 7.5/100 = 0.075

t = 5

n = 12 because it was compounded 12 times in a year

Thus,

A = 20000(1 + 0.075/12)^12 * 5

A = 20000(1.00625)^60

A = 29065.89

The worth of the bond in 5 years would be $29065.89

User Hot Zellah
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