Problema Solution
$5000 is compounded quarterly at a rate of 10%. Find the total amount in the compound interest account at the end of 20 years. (The compound interest factor is 7.20957)
Answer provided by our tutors
P = $5,000 the principal
t = 20 years
r = 0.10 or 10% annual rate
m = 4 compounding period per year
i = 0.10/4 = 0.025 interest rate per period
n = 20*4 = 80 total number of compounding periods
A = future value
A = P(1 + i)^n
A = 5000(1 + 0.025)^80
A = $36,047.84
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The compound interest factor is A/P = 36,047.84/5,000 = 7,209568.