Finance Question

Question

You deposit $3000 in an account earning 5% interest compounded monthly. How much will you have in the account in 5 years?

Answer 1

Hello Freddie,

The formula that will help you get the answer is:

A = P(1 + r/n)^nt where: A is the final value after t years have gone by; P is the INITIAL deposit; r is the annual interest rate; n is the number of times per year you compound the money (monthly means n = 12 since you compound 12 times per year); t is the number of years you invest the money.

With that said, let's assign those letters to numbers given in the question.

"You deposit $3000" means P = 3000

"...in an account earning 5%" means r = 5% = 0.05

"5% interest compounded monthly" means n = 12

"How much will you have in the account in 5 years?" means t = 5 and you have to find A

Plug numbers in the formula: A = 3000(1 + (0.05/12) )^12*5= 3000(1 + (0.05/12) )⁶⁰ = 3850.076 which you can round to $3850.08.

Answer: In 5 years, you will have $3850.08 in the account.