Question

At age 25, Sam deposited $4,000 into an IRA account where it earns 9.8% interest, compounded monthly. What will it be worth when Sam is 33?

Answer 1

The amount $4,000 deposited by Sam into an IRA account where it earns 9.8% interest, compounded monthly, will be $12903.8  when Sam is 33.

What is compound interest?

Compound interest is the amount charged on the principal amount and the accumulated interest with a fixed rate of interest for a time period.

The formula for the final amount with the compound interest formula can be given as,

$A=P\times\left(1+\dfrac{r}{n\times100}\right)^{nt}$

Here, A is the final amount (principal plus interest amount) on the principal amount P of with the rate r of in the time period of t.

At age 25, Sam deposited $4,000 into an IRA account where it earns 9.8% interest, compounded monthly. Thus,

$P=4000\\r=9.8\%$

Now the worth has to be found out when Sam is 33. Thus, the total time period in year is,

$t=33-25\\t=12\rm\; years$

Put the values in the formula,

$A=4000\times\left(1+\dfrac{9.8}{12\times100}\right)^{12\times12}\\A\approx12903.8$

Thus, the amount $4,000 deposited by Sam into an IRA account where it earns 9.8% interest, compounded monthly, will be $12903.8  when Sam is 33.

Learn more about the compound interest here;

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