Question

You invest $2,000 in an account that is compounded annually at an interest rate of 5%. You neverwithdraw money from the account. How much money will be in the account after 4 years?

Answer 1

The formula to calculate the amount for compound interest is given to be:

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

where

A=final amount

P=initial principal balance

r=interest rate

n=number of times interest applied per time period

t=number of time periods elapsed

From the question provided, we have the following parameters:

$\begin{gathered} P=2000 \\ r=5\%=0.05 \\ n=1(annual\text{ }compounding) \\ t=4 \end{gathered}$

Therefore, we can solve as follows:

$\begin{gathered} A=2000(1+\frac{0.05}{1})^{1\times4}=2000(1.05)^4 \\ A=2431.01 \end{gathered}$

The amount after 4 years is $2,431.01.