Suppose your friend's parents invest $10,000 in an account paying 4% compounded annually. What will be the balance after 6 years?

Question

Round to the nearest cent

Answer 1

Hi Madeline,

 

The equation for compound interest is

 

A = P (1+i)^t

 

A = final value

P = amount invested (principal) (10000)

i = interest rate, expressed as a decimal (.04)

t = number of years invested (6)

This formula assumes annual compounding.

 

Plugging in what we know.

A = 10000(1.04)⁶

A = 10000 (1.265319)

A = $12,653.19