Tom has two investment options. He can either invest $3,000 in a friendʹs project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friendʹs project, he will receive $3,400 after 5 years.
-Refer to the scenario above. What will be the balance in Tom's account after 5 years if he deposits $3,000 in the bank?

Question

Quizplus · Accepted Answer

To find the balance in Tom's account after 5 years with an annual interest rate of 6 percent, we use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($3,000), r is the annual interest rate (6%, or 0.06), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. Assuming the interest is compounded annually (n=1), the calculation is $3,000(1 + 0.06/1)^(1*5) = $4,014.68.

Tom Has Two Investment Options