Question

Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of ten years, what is the total amount that she should expect to receive assuming interest rates do not change

Answer 1

Answer:

FV= $6,418.20

Explanation:

Giving the following information:

Initial investment (PV)= $5,000

Interest rate (i)= 0.025/12= 0.002083

Number of periods (n)= 10*12= 120 months

To calculate the future value (FV), we need to use the following formula:

FV= PV*(1 + i)^n

FV= 5,000*(1.002083^120)

FV= $6,418.20