Question

Find the amount in the bank after 7 years if interest is compounded quarterly?

Find the amount in the bank after 7 years if interest is compounded monthly?

Answer 1

a) amount in the bank after 7 years if interest is compounded quarterly is $6,605

b) amount in the bank after 7 years if interest is compounded quarterly is $6,612.57

Explanation:

We are given:

Principal Amount P= 5000

Rate r= 4% = 0.04

time t = 7 years

The formula used is:
`A=P(1+(r)/(n))^(nt)`

where A is future value, P is principal amount, r is rate, n is compounded value and t is time

a) Find the amount in the bank after 7 years if interest is compounded quarterly?

If interest is compounded quarterly then n = 4

Using values given in question and finding A

`A=P(1+(r)/(n))^(nt)\\A=5000(1+(0.04)/(4))^(4*7) \\A=5000(1+0.01)^(28)\\A=5000(1.01)^(28)\\A=5000(1.321)\\A=6,605`

So, amount in the bank after 7 years if interest is compounded quarterly is $6,605

b) Find the amount in the bank after 7 years if interest is compounded monthly?

If interest is compounded quarterly then n = 12

Using values given in question and finding A

`A=P(1+(r)/(n))^(nt)\\A=5000(1+(0.04)/(12))^(12*7) \\A=5000(1+0.003)^(84)\\A=5000(1.003)^(84)\\A=5000(1.322)\\A=6,612.57`

So, amount in the bank after 7 years if interest is compounded quarterly is $6,612.57