Suppose 20000 is deposited into an account paying 45 interes

Suppose $20,000 is deposited into an account paying 4.5% interest, compounded annually. How much money is in the account after four years if no withdrawals or additional deposits are made?

Solution

The formula for compound interest is F = P(1 + r)^t where P is the principal (initial amount), r is the annual rate of interest in decimals, t is the number of years and F is the maturity amount. Here, P = $ 20000, t = 4 and r = 4.5/100 = 0.045. Therefore, F = 20000(1 + 0.045)⁴ = 20000(1.045)⁴ = 20000*1.192518601 = 24923.63875 = $ 23850.37 ( on rounding off to the nearest cent).