Suppose an investor deposits $5,000 in an interest-bearing account at her local bank. The account pays 2.5% (annual) with interest compounded monthly. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 10 years, what is the total amount that she should expect to receive assuming interest rates do not change?
A) $5,105.15
B) $6,400.42
C) $6,418.46
D) $96,790.75

Question

Quizplus · Accepted Answer

Using the formula for compound interest:

A = P(1 + r/n)^(n*t)

where 
A = the total amount 
P = principal 
r = annual interest rate 
n = number of times interest is compounded per year 
t = time in years

Plugging in the given values:

A = 5000(1 + 0.025/12)^(12*10) 
A = 6418.46

Therefore, the total amount she should expect to receive after 10 years is $6,418.46.

The other answer choices are incorrect based on the calculation of the compound interest formula.

Suppose an Investor Deposits $5,000 in an Interest-Bearing Account at Her