Question

How much will $1000 deposited in an account earning 7% interest compounded annually be worth in 20 years? (which formula do I use? I am confused...txs)

Answer 1

$3870

Explanation:

Hello, the initial deposit is $1000.

After one year, we will get 1000 + 7%*1000= 1000 * ( 1+7%) = 1000 * (1+0.07)

= 1000 * 1.07

And we want to compound it so the second year we will get

`1000 * 1.07 * 1.07 = 1000 * 1.07^2`

And after n years, we will get

`1000 * 1.07^n`

In that example, we want to know how much we will get after 20 years, so this is:

`1000 * 1.07^(20)=3869.684462...`

Thank you.