Tanya invested $1000 in a tax-sheltered annuity that pays 9% annual interest compounded monthly. Find the value of her investment after 5 years. Round your answer to the nearest cent.

Question

Quizplus · Accepted Answer

We can use the formula:

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

Where:

A = the final amount (what we want to find)
P = the principal amount (the initial investment) = $1000
r = the annual interest rate (as a decimal) = 0.09
n = the number of times the interest is compounded per year = 12 (monthly)
t = the number of years the money is invested = 5

Plugging in the numbers, we get:

A = 1000(1 + 0.09/12)^(12*5)
A = 1000(1 + 0.0075)^60
A = 1000(1.0075)^60
A = 1000(1.548118)
A = $1548.12

Rounded to the nearest cent, the answer is $1565.68.

Tanya Invested $1000 in a Tax-Sheltered Annuity That Pays 9