Suppose that when your friend was born, your friends parents deposited $2000 in an account paying 4.5% interest, compounded monthly. What will the account balance be after 18 years?

Answer 1

To find the account balance after 18 years, we can use the formula for compound interest:

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

Where:
A is the final account balance
P is the principal amount (initial deposit)
r is the annual interest rate (expressed as a decimal)
n is the number of times interest is compounded per year
t is the number of years

In this scenario:
P = $2000
r = 4.5% = 0.045 (4.5% divided by 100 to convert to decimal)
n = 12 (compounded monthly)
t = 18 years

Now we can plug in the values:

A = $2000(1 + 0.045/12)^(12*18)
A = $2000(1 + 0.00375)^(216)
A = $2000(1.00375)^(216)
A ≈ $2000(1.8888888889)
A ≈ $3777.78

Therefore, the account balance will be approximately $3777.78 after 18 years.