If on the day you were born,your parents deposited $1,000 into a savings account that would earn an annual compound interest rate of 5%,what would the value of the account be on your 20^th birthday?

Question

Quizplus · Accepted Answer

Using the formula for compound interest:

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

where:

A = final amount
P = principal (initial deposit)
r = annual interest rate (as a decimal)
n = number of times interest is compounded per year
t = time in years

In this case:

P = $1,000
r = 0.05
n = 1 (compounded annually)
t = 20

So:

A = $1,000(1 + 0.05/1)^(1*20)
A = $1,000(1.05)^20
A = $2,653.30

Therefore, the value of the account on the 20th birthday would be $2,653.30, which corresponds to choice B.

If on the Day You Were Born,your Parents Deposited $1,000