Question

Suppose your friends parents invest $20,000 in an account paying 5% compounded annually. What will the balance be after 5 years?

Answer 1

Answer:

The balance will be $25,525.63125 after 5 years

Step-by-step explanation:

The formula of the compounded interest is A = P$(1+\frac{r}{n})^{nt}$ , where

• A is the new value

• P is the initial amount of investment

• r is the rate in decimal

• n is the number of periods per year

• t is the time in years

∵ Your friends' parents invest $20,000 in an account

∴ P = 20,000

∵ The account pays 5% compounded annually

∵ r = 5% ⇒ divide it by 100 to change it to decimal

∵ 5% = 5 ÷ 100 = 0.05

∴ r = 0.05

∵ n = 1 ⇒ compounded annually

∵ The time is 5 years

∴ t = 5

→ Substitute these values in the formula above

∵ A = 20,000$(1+\frac{0.05}{1})^{1(5)}$

∴ A = 20,000$(1.05)^{5}$

∴ A = 25,525.63125

∴ The balance will be $25,525.63125 after 5 years