Question

You plan to set aside $500 for 5 years. The account pays annual interest of 8 percent, compounded quarterly. The ending balance (principal plus interest) will be $ at the end of 5 years.

Answer 1

Answer: $742.97

Step-by-step explanation:

The ending balance (principal plus interest) is known an compound amount.

the  formula to calculate the compound amount after t years compounding quarterly , is given by :-

$A=P(1+\dfrac{r}{4})^{4t}$

, where r= rate of interest ( in decimal)

t= time ( in years)

P= Principal amount.

As per given , we have

P= $500

t= 5 years

r= 8%=0.08

Substitute theses values in the formula, we get

$A=500(1+\dfrac{0.08}{4})^{4(5)}$

$A=500(1+0.02)^{20}$

$A=500(1.02)^{20}$

$A=500(1.48594739598)$

$A=742.97369799\approx742.97$   [To the nearest cent]

Hence, the ending balance will be $742.97 at the end of 5 years.