3% gets compounded 20 times.
5000*(1.03)^20 = $9030.56
5000*(1.03)^20 = $9030.56
When money grows, it's like a snowball rolling down a hill, gathering more snow as it goes. In this case, the snowball starts with $5,000 and it's rolling downhill at a 6% interest rate, compounded semiannually.
Now, compounding semiannually means that the interest is calculated twice a year. So, we have two interest periods per year. The formula to calculate compound interest is:
A = P(1 + r/n)^(nt)
Where:
A = the final amount
P = the principal (starting amount)
r = the annual interest rate (as a decimal)
n = the number of times that interest is compounded per year
t = the number of years
Plugging in the values, we have:
P = $5,000
r = 6% = 0.06 (as a decimal)
n = 2 (compounded semiannually)
t = 10 years
So, the formula becomes:
A = $5,000(1 + 0.06/2)^(2*10)
Calculating that, the amount would grow to approximately $8,003.66. So, after 10 years, your $5,000 would have turned into a little over $8,000. That's quite a growth spurt!
A = P(1 + r/n)^(nt)
Where:
A = the future value (amount after the interest has been compounded)
P = the principal amount (initial investment)
r = the annual interest rate (in decimal form)
n = the number of times interest is compounded per year
t = the number of years
In this case:
P = $5,000
r = 6% or 0.06
n = 2 (semiannual compounding)
t = 10 years
Let's plug in the values and calculate:
A = 5000(1 + 0.06/2)^(2*10)
A = 5000(1 + 0.03)^(20)
A = 5000(1.03)^(20)
Using a calculator, the future value of $5,000 after ten years at 6% compounded semiannually is approximately $8,515.27.
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment
P = the principal amount (initial investment)
r = annual interest rate (expressed as a decimal)
n = number of times the interest is compounded per year
t = number of years
In this case, the principal amount (P) is $5,000, the annual interest rate (r) is 6% or 0.06 as a decimal, the number of times the interest is compounded per year (n) is 2 (semiannually), and the number of years (t) is 10.
Substituting these values into the formula, we get:
A = 5000(1 + 0.06/2)^(2*10)
Simplifying further:
A = 5000(1 + 0.03)^20
A = 5000(1.03)^20
Using a calculator, we can evaluate this expression to find that:
A β $8,236.78
Therefore, over ten years at a 6% interest rate compounded semiannually, $5,000 would grow to approximately $8,236.78.