The formula for compound interest is: Where: A = the future value of the investment (including interest) P = t

Question

The formula for compound interest is:

Where:

A = the future value of the investment (including interest)
P = the principal investment amount (the initial deposit amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested for

If Josh invests $500 in a 5-year fixed interest savings bond that pays 5% per annum, how much will his entire investment be worth at the end of the term?

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Vodka 4 years 2021-07-30T16:27:30+00:00 1 Answers 16 views 0

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  1. mit
    0
    2021-07-30T16:28:30+00:00
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    Answer:

    Future value, A = $642

    Step-by-step explanation:

    Given the following data;

    Principal = $500

    Interest rate = 5% = 5/100 = 0.05

    Time, t = 5 years

    n = 365

    To find the future value, we would use the compound interest formula;

    A = P(1 + \frac{r}{n})^{nt}

    Where;

    A is the future value.

    P is the principal or starting amount.

    r is annual interest rate.

    n is the number of times the interest is compounded in a year.

    t is the number of years for the compound interest.

    Substituting into the equation, we have;

    A = 500(1 + \frac{0.05}{365})^{365*5}

    A = 500(1 + 0.000137)^{1825}

    A = 500(1.000137)^{1825}

    A = 500*1.2840

    Future value, A = $642

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