Word Problem

Question

Jennifer put $17,000 in an education
account on the day her daughter was born. If the account earned 6.45% interest
compounded quarterly, what was the total
in the account when her daughter turned
18? Round the final answer to the nearest
cent.

Answer 1

Use the formula A = P(1 + r/n)^nt

 

   P = principal = initial investment

   r = annual interest rate (expressed as a decimal)

   n = number of times that interest is compounded yearly

   t = number of years

   A = amount in the account in t years

 

So, A = 17000(1 + 0.0645/4)^(4)(18)

 

          = 17000(1.016125)⁷²

 

          = $53,782.72