Question

Suppose Chewbacca invests $18,500 in a savings account at the National Bank ofAlderaan. Calculate the future value of the account if interest is compoundedmonthlyat a rate of 4% per year for five years.

Answer 1

To solve this problem, we can just use the compound interest formula. This formula is given by

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

Where A is the future value, P is the invested money, r is the rate(written in decimal), n is the amount of times the interest is compounded by unit t, and t is the time.

Since this rate is compounded yearly, our n = 1. The other values we have from the text

$\begin{gathered} P=18500 \\ r=0.04 \\ t=5 \end{gathered}$

Plugging those values in our formula, we have

$\begin{gathered} A=18500(1+0.04)^5 \\ A=18500(1.04)^5=22508.0786944\approx22508.08 \end{gathered}$

The future value of Chewbacca's account is $22508.08.