A young man is the beneficiary of a trust fund established for him 21 years ago at his birth. If the original amount placed in trust was $5,000, how much will he receive if the money has earned interest at the rate of 8%/year compounded annually? Compounded quarterly? Compounded monthly?
A) A young man will receive
$25,169 if the money has earned interest compounded annually,
$26,387 if the money has earned interest compounded quarterly,
$26,679 if the money has earned interest compounded monthly.
B) A young man will receive
$25,477 if the money has earned interest compounded annually,
$26,843 if the money has earned interest compounded quarterly,
$26,913 if the money has earned interest compounded monthly.
C) A young man will receive
$24,494 if the money has earned interest compounded annually,
$26,687 if the money has earned interest compounded quarterly,
$26,523 if the money has earned interest compounded monthly.
D) A young man will receive
$24,962 if the money has earned interest compounded annually,
$26,540 if the money has earned interest compounded quarterly,
$27,477 if the money has earned interest compounded monthly.

Question

A young man is the beneficiary of a trust fund established for him 21 years ago at his birth. If the original amount placed in trust was $5,000, how much will he receive if the money has earned interest at the rate of 8%/year compounded annually? Compounded quarterly? Compounded monthly? ​
A) A young man will receive
$25,169 if the money has earned interest compounded annually,
$26,387 if the money has earned interest compounded quarterly,
$26,679 if the money has earned interest compounded monthly.
B) A young man will receive
$25,477 if the money has earned interest compounded annually,
$26,843 if the money has earned interest compounded quarterly,
$26,913 if the money has earned interest compounded monthly.
C) A young man will receive
$24,494 if the money has earned interest compounded annually,
$26,687 if the money has earned interest compounded quarterly,
$26,523 if the money has earned interest compounded monthly.
D) A young man will receive
$24,962 if the money has earned interest compounded annually,
$26,540 if the money has earned interest compounded quarterly,
$27,477 if the money has earned interest compounded monthly.

Quizplus · Accepted Answer

Using the formula for compound interest, we can calculate the amount the young man will receive under each scenario:

Compounded annually:
$5,000(1 + 0.08)^{21} = $25,169

Compounded quarterly:
$5,000(1 + 0.08/4)^{4*21} = $26,387

Compounded monthly:
$5,000(1 + 0.08/12)^{12*21} = $26,679

Therefore, choice A is correct as it matches all three calculations.

A Young Man Is the Beneficiary of a Trust Fund