$5000 is deposited in an account that earns 3.2% annual interest. If no funds are added or withdrawn from the account, what will be the account balance in 10 years?

Question

Round to the nearest cent.

A. $6813.34

B. $8000.11

C. $7425.91

D. $6851.25

Answer 1

The formula for compound interest is:

A = P(1 + r/n)^(nt)

where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the time the money is invested/borrowed for, in years

In this case:
P = $5000
r = 0.032 (3.2% annual interest rate)
n = 1 (compounded annually)
t = 10 years

Plugging in the values:
A = $5000*(1 + 0.032/1)^(1*10)
A = $5000*(1 + 0.032)^10
A = $5000*(1.032)^10
A = $5000*(1.404928)
A = $7024.64

Therefore, the account balance after 10 years would be $7024.64. Rounded to the nearest cent, the answer is:

A. $6813.34.