Problema Solution
Charlotte wins the lottery and takes home (after taxes) $500,000. She puts the money immediately in a special 10-year CD that pays 6.25% interest compounded quarterly. If she keeps the money in the account for the full 10-year term, how much money will she have in the account at the end of the 10-year period?
Answer provided by our tutors
P = $500,000 is the principal
r = 0.0625 or 6.25% annual rate
m = 4 compounding period per year (compounded quarterly)
i = r/4 = 0.0625/4 interest rate per period
t = 10 years is the time in years
n = t*m = 10*4 = 40 is the total number of compounding periods
A = the future value (the amount in 10 years)
The formula for the future value is:
A = P(1 + i)^n
A = 500000(1 + 0.0625/4)^40
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click here to see the step by step calculation for A
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A = $929,619.69
The future value in 10 years will be $929,619.69.