A principal of 5000 is invested at 45 interest compounded

A principal of $ 5000 is invested at 4.5 % interest, compounded annually. How much will the investment be worth after 5 years? Use the calculator provided and round your answer to the nearest dollar.

Solution

The formula for compound interest is F = P (1+ r )^t where P is the initial amount (Principal), t is the number of years r is the rate of interest in decimals and F is the final amount . Here, P = $ 5000 , r = 4.5 % = 4.5/ 100 = 0.045 and t = 5. Therefore, F = 5000( 1 + 0.045)⁵ = 5000*(1.045)⁵ = 5000*1.246181938 = $ 6230.909688 = $ 6230. 91 ( on rounding off to the nearest cent) = $ 6231 on rounding off to the nearest dollar.