Question

Suppose an investor deposits $2,500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of seven years, what is the total amount that she should expect to receive assuming interest rates do not change

Answer 1

The correct answer is $2971.71 ( approx.).

Step-by-step explanation:

According to the scenario, the given data are as follows:

Present value (PV) = $2,500

Rate of interest (r) = 2.5%

Time period (t) = 7 years

So, we can calculate the Future value by using following formula:

FV = PV ( 1 + r)^t

By putting the value, we get

FV = $2,500 ( 1 + 0.025)^7

FV = $2,500 × 1.18868575367

FV = $2971.71 (Approx.)