Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:

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Since the account pays 3.5 percent interest, compounded annually, Sam's initial deposit must have been $4,098.07 ($4,098.07 x 1.035^4 = $5,000). If the account paid a higher rate of interest, Sam could have deposited less money today and still ended up with $5,000 in four years. Option A is incorrect because the interest is compounded annually, meaning the interest earned each year will increase as the account balance grows. Option B is also incorrect as the interest is compounded, not simple. Option D is incorrect because the account will be worth $5,000 after four years, but Sam did not deposit $5,000 initially. Option E is incorrect because withdrawing the interest each year would result in less total interest earned over the four-year period.

Sam Just Opened a Savings Account Paying 3