Question

Alma won a beauty contest and received $3,500 in cash. In 4 years, when Alma turns 21, she wishes to go to Las Vegas. Her parents agree to pay for her hotel and airfare, but she needs spending cash. Her credit union will pay 5% per year compounded quarterly. How much will Alma have for her trip when she turns 21, if she invests her money in this account?

Answer 1

Answer:

A = $4,269.61

Explanation:

This question is a compound interest problem, we will use the compound interest formula to solve the given problem.

Formula formula for compound interest is by;

A = P (1+ r÷n)^nt

We are given the following values as ;

P= $3,500

r = 5% = 0.5

n = 4

t = 4

Substituting the values into the formula we have;

A = $3,500( 1+ 0.5÷4)^4×4

A = $3,500(1 +0.0125)^16

A = $3,500(1.0125)^16

A = $3,500× 1.22

A = $4,269.61

Answer 2

Answer:

Alma would have $ 4,269.61   for her trip in four years' time

Explanation:

The amount she would have for her trip in four years' time can be computed using the future value formula which is given as:

FV=PV*(1+r/t)^N*t

PV is the amount she has today which is $3,500

r is the rate of return the credit union offered her,that 5%

t is the number of times in a year the interest is compounded which is 4

N is the number of years the investment would last which is 4 years

FV=$3,500*(1+5%/4)^4*4

FV=$3,500*(1+1.25%)^16

FV=$3,500*(1.0125)^16

FV=$3,500*1.219889548

FV=$4,269.61  

Alma would have $ 4,269.61   for her trip in four years if the $3,500 is invested at 5% compounded quarterly