Question

Your grandparents give you $1000 for your tenth birthday to invest for your college education. You research some investment companies around town and find one that pays you 4.2% and compounds quarterly. If you leave the money in your account until your 18th birthday, how much money will you have? Show all your work.

Answer 1

$ 13,968.90

Explanation:

• You are given the money at 10 years old
• Invest it until you're 18, so that's 8 years
• This is compound interest, so use the formula:
  `A=P(1+(r)/(n))^(nt)`
• A is the total amount with interest
• P is the principal or starting amount 10000 dollars
• r is the rate (percentage): 4.2%, use the decimal form in the equation
• n is the number of times you are compounding; in this case, it is compounded quarterly. Quarterly means every quarter of a year or 3 months, so it is compounded 4 times a year, n is 4
• t is the time, so that's 8 years
• 
  `A=10000(1+(0.042)/(4))^(4*8)= 13,968.90`