Question

You deposit $5000 in an account that pays 2.25% annual interest. Find the balance after 5 years when the interest is compounded quarterly.

Answer 1

$5,593.60

Explanation:

Lets use the compound interest formula provided to solve this:

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

P = initial balance

r = interest rate (decimal)

n = number of times compounded annually

t = time

First, change 2.25% into a decimal:

2.25% ->
`(2.25)/(100)` -> 0.0225

Since the interest is compounded quarterly, we will use 4 for n. Lets plug in the values now:

`A=5,000(1+(0.0225)/(4))^(4(5))`

`A=5,593.60`

The balance will be $5,593.60