In: Economics
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?
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.