Question

How much would $500 invested at 9% interest compounded annually be worth after 4 years? Round your answer to the nearest cent. 

Answer 1

A = P(1+(r/n))^nt
A = 500(1+(.09/1))^1∗4
A = 500(1.09)^4
A = 705.79

Answer 2

Answer: B. $705.79

Step-by-step explanation:

The concept of compound interest is that interest is added back to the principal sum so that interest is gained on that already-accumulated interest during the next compounding period.

Interest can be compounded on any given frequency schedule, from continuous to daily to annually. When incorporating multiple compounds per period (monthly compounding or quarterly compounding, etc), the general formula looks like this:

$\boxed{A = P(1 +\frac{r}{n})^{n*t}}$

A= the future value of the investment/loan, including interest

P= the principal investment amount (the initial deposit or loan amount)

r= the annual interest rate (decimal)

n= number of times interest is compounded per unit "t"

t= the time the money is invested or borrowed for

(Using the data provided in the question)

P = $500

r = 9/100 = 0.09

n = 1 (compounded annually)

t = 4 years  

$A = 500(1 +\frac{0.09}{1})^{1*4}$

A = $500(1 + 0.09)⁴ = $500(1.09)⁴ = $500(1.4115816) = $705.79

Answer: B. $705.79

$\textit{\textbf{Spymore}}$