Lorene Buckley wants to invest $3,500 today in a money market fund that pays an annual rate of 5 percent paid quarterly. She plans to fund a scholarship with the proceeds at her alma mater, Towson University. How much will Lorene have at the end of seven years? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

Using the formula for compound interest, we can find that the investment will grow to $4,956.10 at the end of seven years. This can be calculated as:
A = P(1 + r/n)^(nt)
where A is the future value, P is the principal amount ($3,500), r is the annual interest rate (0.05), n is the number of times the interest is compounded per year (4 for quarterly), and t is the number of years (7).

A = 3500(1 + 0.05/4)^(4*7)
A = 3500(1.0125)^28
A = $4,956.10

Rounding to the nearest dollar gives us the answer of $4,956, which is closest to option C.

Lorene Buckley Wants to Invest $3,500 Today in a Money