Question

Lorene Buckley wants to invest $3,500 today in a money market fund that pays a quarterly interest at 5 percent. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Lorene have at the end of seven years? (Round to the nearest dollar.)

Answer 1

• $4,956

Step-by-step explanation:

You need to calculate the value at the end of seven years using compound interest.

• Principal: P = $3,500
• annual interest, i = 5% = 0.05
• quarterly interest: r = 5%/4 = 0.05/4 = 0.0125
• number of periods: n = 7 years × 4 quarters/year = 28

The fomula is:

• Future value = P (1 + r)ⁿ

Substitute:

• Future value = $3,500 (1 + 0.0125)²⁸ = $4,955.97 ≈ $4,956