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In: Finance

Compounding. Suppose your Aunt set aside $50,000 for you 5 years ago and her account earned...

  1. Compounding. Suppose your Aunt set aside $50,000 for you 5 years ago and her account earned 8% interest over that time.
    1. What is the balance in that account today?
    2. How much of that total is compound interest?

Solutions

Expert Solution

We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

a.A=50,000*(1.08)^5

=50,000*1.46932808

=$73466.40(Approx)=account balance today

b.Compound interest=A-P

=73466.40-50,000

=$23466.40(Approx)

jeff jeffy answered 2 years ago
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