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On your second birthday, your parents deposited $500 into a savings account that earns 7% interest and compounds monthly. How much will be in the account when you are 18 years old

User Gandhi
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1 Answer

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Answer: $1755 will be in the account when you are 18 years old.

Explanation:

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

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

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = $500

r = 7% = 7/100 = 0.07

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

t = 18 years

Therefore,

A = 500(1 + 0.07/12)^12 × 18

A = 500(1 + 0.00583)^216

A = 500(1.00583)^216

A = $1755

User Ben Mabey
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