If your grandmother gives you a high school graduation gift of $5,000 and you do not spend the gift, but invest it to earn an interest rate of 6% per year compounded annually, upon your graduation from college after exactly four years your gift will be worth

Question

Quizplus · Accepted Answer

Using the formula for compound interest, we can calculate the future value of the gift after four years:

FV = PV(1+r)^n

where PV is the present value (the initial gift), r is the interest rate per year (6%), and n is the number of compounding periods (4 years in this case, since interest is compounded annually).

Plugging in the numbers, we get:

FV = $5,000 x (1+0.06)^4
FV = $5,000 x 1.26247
FV = $6,312.35

Therefore, the gift will be worth $6,312.35 after four years if it is invested at an interest rate of 6% per year compounded annually. The closest answer choice is B, which is the correct answer.

If Your Grandmother Gives You a High School Graduation Gift