Question

Jorge inherited $5,000 from his grandfather. However, he is not allowed to touch the money forseven years. If the money sits in a savings account earning 2.5% interest, how much money willJorge have when he's able to use it for the first time?

Answer 1

The Solution.

Step 1:

We shall calculate what the money will amount to by using the Compound Interest formula given below:

$\begin{gathered} A=P(1+\frac{r}{100})^n \\ A=\text{amount = ?} \\ r=\text{rate =2.5 \%} \\ n=\text{ number of periods = 7 years} \\ P=pr\text{incipal =\ 5000} \end{gathered}$

Step 2:

We shall substitute the values of the parameters into the formula.

$\begin{gathered} A=5000(1+\frac{2.5}{100})^7 \\ \\ A=5000(1+0.025)^7 \\ A=5000(1.025)^{7^{}}=5943.4288\approx5943.43 \end{gathered}$

Step 3:

Presentation of the Answer.

The correct answer is $5943.43