Suppose you invest in an account that pays 5% interest, compounded quarterly. You would like your investment to grow to $5000 in 16 years. How much would you have to invest in order for this to happen?
A) $2258
B) $2374
C) $3125
D) $4153

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for compound interest is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal (initial investment), r is the annual interest rate, n is the number of times per year that the interest is compounded, and t is the number of years.In this case, we have A = $5000, r = 5%, n = 4 (since the interest is compounded quarterly), and t = 16. Substituting these values into the formula, we get:$5000 = P(1 + 0.05/4)^(4*16)$5000 = P(1.0125)^64$5000 = P(2.258)P = $5000/2.258P = $2258Therefore, you would have to invest $2258 in order for your investment to grow to $5000 in 16 years.

Suppose You Invest in an Account That Pays 5% Interest