Lorene Buckley wants to invest $3,500 today in a money market fund that pays a quarterly interest at 5 percent. 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

To calculate the amount Lorene will have at the end of seven years, we need to use the formula for compound interest:

A = P(1 + r/n)^(n*t)

Where:
A = the amount at the end of the investment period
P = the principal amount invested
r = the annual interest rate (in decimal form)
n = the number of times the interest is compounded per year
t = the number of years of the investment

In our case, Lorene is investing $3,500 at an annual interest rate of 5%. Since the interest is compounded quarterly (4 times a year), we have:

P = $3,500
r = 5% = 0.05
n = 4
t = 7

Plugging these values into the formula, we get:

A = $3,500(1 + 0.05/4)^(4*7) = $4,955.48

Rounding to the nearest dollar, we get choice C as the correct answer: $4,956.

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