Question

Karen Gaines invested $10,000 in a money market account with an interest rate of 1.75% compounded semiannually. Five years later, Karen withdrew the full amount to put toward the down

payment on a new house. How much did Karen withdraw from the account?

Karen withdrew $ ____
(Round to the nearest cont as needed.)

Answer 1

Karen withdrew $10,910.30

Explanation:

To calculate the amount he withdrew, we shall be using the formula for compound interest.

Mathematically the amount withdrew A is calculated as follows;

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

Where I is the initial amount deposited = $10,000

r is the interest rate = 1.75% = 1.75/100 = 0.0175

n is the number of times per year in which interest is compounded which is 2 in this case since it is semi annually

t is the number of years = 5 in this case

Now plugging these values, we have;

A = 10,000(1 + 0.0175/2))^(2)(5)

A = 10,000(1.00875)^10

A = 10,910.269471264706

Which is approximately $10,910.30