The parents of a recent high school graduate decides to invest the $5,000 he received for her high school graduation in a fund earning 10% annual interest.At the end of the four-year period,she expects to withdraw the money to pay for accumulated college tuition loans.What is the approximate amount that would be available for withdrawal after five years if interest is compounded monthly?

Question

Quizplus · Accepted Answer

The formula for compound interest is A = P(1 + r/n)^(nt), where P is the principal amount ($5,000), r is the annual interest rate (0.10), n is the number of times interest is compounded per year (12), and t is the number of years (5). Plugging in the values, A = 5000(1 + 0.10/12)^(12*5) ≈ $8,225.

The Parents of a Recent High School Graduate Decides to Invest