Question

At the time of her grandson's birth, a grandmother deposits $1000 in an account that pays 2.5% compounded monthly. What will be the value of the account at the child's twenty-first birthday, assuming that no other deposits or withdrawals are made during this period? The value of the account will be $

Answer 1

We will use the formula;

$A\text{ }=\text{ P(1+}\frac{r}{n})^{nt}$

where A is the amount

P is the prncipal also known as the initial amount

r is the rate

t is the time

n is the number of interest pay in a year

A is the amount after t years

From the question;

p = $1000

r = 2.5% = 0.025

t= 21

n = 12

Substitute the values into the formula

$A=1000(1+\frac{0.025}{12})^{12\times21}$

Evaluate:

$A=1000(1.00208333333)^{252}$$A=1000\text{ (1.689}53589855)$

A = $1689.5359

The value of the account will be $1689.5359