Question

In: Economics

At the end of each year for 5 years, $500 is deposited into a credit union...

At the end of each year for 5 years, $500 is deposited into a credit union account. The credit union pays 5% interest compounded annually. At the end of 5 years, how much will be in the account?

Solutions

Expert Solution

Year Principal Interest Final Amount
1     500.00        25.00            525.00
2 1,025.00        51.25        1,076.25
3 1,576.25        78.81        1,655.06
4 2,155.06     107.75        2,262.82
5 2,762.82     138.14        2,900.96

Given above is the table which calculates the total amount earned if $500 is deposited annually and money is compounded for 5 years.

1. The interest column simply calculates the interest at 5% of the principal. The first principal is the original money deposited, i.e. $500.

2. The final amount is calculated by adding principal and the interest.

3. Then the next years principal is calculated by adding the newly deposited $500 to the final amount of the last year.

4. By continuing these calculation for 5 years, we get $2900.96 at the end of the time period.


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