Question

If you put $1,000 into a bank account that earns an interest rate of 4 percent compounded annually, what will be the account balance at the end of 5 years?Please provide step-by-step instructions for solving the problem

Answer 1

We can compute account balance at end of 5 years (Future value) with following Time value equation for future value.

F = P*(1+r)^n

where,

F = Future value

P = Present value or Initial deposit

r = Interest rate per period

n = no. of period ( years)

putting the values:

F = 1000*(1+0.04)^5

F = $1,216.65

Thus, Account balance at end of 5 years would be $1,216.65