Question

You deposit $500 in an account earning 5% interest compounded annually. How much will you have in the account in 20 years

Answer 1

If you deposit $500 in an account earning 5% interest compounded annually, the account balance in 20 years will be $1,326.65.

What is the future value?

The future value represents the value of a cash flow or investment over a period compounded periodically at an interest rate.

The future value can be determined using the future value formula, table, or an online finance calculator, as in this case.

Data and Calculations:

N (# of periods) = 20 years

I/Y (Interest per year) = 5%

PV (Present Value) = $500

PMT (Periodic Payment) = $0

Results:

FV = $1,326.65

Total Interest = $826.65

Thus, if you deposit $500 in an account earning 5% interest compounded annually, the account balance in 20 years will be $1,326.65.

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Answer 2

The amount that would be in the account in 20 years is $1,326.65

What is compound interest?

Compound interest means that interest earned previously would earn additional interest in future, in other words, interest upon interest is earned.

In order to determine the accumulated amount in the account after 20 years, we would make use of the future value of a single cash flow:

FV=PV*(1+r)^N

FV=future value after 20 years=unknown

PV=initial deposit=$500

r=annually compounded interest rate=5%

N=20 years

FV=$500*(1+5%)^20

FV=$1,326.65

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