Question

use the formula for computing future value using compound interest to determine the value of an account at the end of 5 years if a principal amount of $2,000 is deposited in an account at an annual interest rate of 4% and the interest is compounded quarterly

Answer 1

$2440.40

Explanation:

time = t = 5 years

Principal = P = $2000

rate = r = 4% = 0.04

n = number of times compounded = quaterly

n = 4

FV = future value

Using compound interest formula:

$FV\text{ = P(1 +}\frac{r}{n})^{nt}$$\begin{gathered} FV\text{ = 2000(1 +}\frac{0.04}{4})^{4\times5} \\ FV\text{ = }2000(1+0.01)^{20} \\ FV=2000(1.01)^{20} \end{gathered}$$\begin{gathered} FV\text{ = 2000 }\times\text{ 1.220}2 \\ FV\text{ = \ 2440}.40 \end{gathered}$