You want to save for a brand-new car. You put the $5,000 your Grandma gave you when you graduated in an account that pays 6% interest and is compounded monthly. How much will you have at the end of five years? Hint: use Compound Interest formula FV = PV * (1+r/n)^ntResponses$7,130.45$7,130.45$8,876.54$8,876.54$13,484.85$13,484.85$6,744.25
Question
You want to save for a brand-new car. You put the 7,130.458,876.5413,484.856,744.25
Solution
To solve this problem, we need to use the formula for compound interest:
FV = PV * (1+r/n)^(nt)
Where: FV = Future Value PV = Present Value r = annual interest rate n = number of times interest applied per time period t = time the money is invested for
Given: PV = $5,000 r = 6% or 0.06 n = 12 (since interest is compounded monthly) t = 5 years
Substituting these values into the formula, we get:
FV = 5000 * (1 + 0.06/12)^(12*5)
Calculating the values inside the brackets first:
= 5000 * (1 + 0.005)^(60)
= 5000 * (1.005)^60
= 5000 * 1.348485
= $6742.425
So, after 5 years, you will have approximately 6,744.25.
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