Question

If you deposit $10,000 in a bank account that pays 9% interest annually, how much will be in your account after 5 years? Round your answer to the nearest cent.

Answer 1

Solution:           

The formula for calculating the future value of an Investment with compound Interest is

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

Where

P = Principal   ;   r = rate of interest   ; n = No. of compounding periods per year ; t = Time in years

As per the information given in the question we have

P = $ 10,000   ; r = 9 % = 0.09 ; n = 1   ;   t = 5 Years

Applying the above values in the formula we have

= $ 10,000 * ( 1 + ( 0.09 / 1) ) ^{5 * 1}

= $ 10,000 * ( 1 + ( 0.09 ) ) ⁵                     

= $ 10,000 * ( 1.09 ) ⁵

= $ 10,000 * 1.538624

= $ 15,386.24

= $ 15,386.20 ( when rounded off to the nearest cent )          

If we deposit $10,000 in a bank account that pays 9% interest annually, there will be $ 15,386.20 in the account after 5 years

Note : ( 1.09 ) ⁵ = 1.538624 is calculated using the excel formula =POWER(Number,Power)

=POWER(1.09,5)