Question

If $38000 is put in a savings account paying interest of 5% compounded annually, what amount will be in the account at the end of 5 years?

1- $30878

2- $47500

3- $48120

4- $48499

Answer 1

Here, interest is compounded annually, therefore, the equation for finding the amount at the end of 5 years will be:-

= P[(1 + i )^n - 1]

here, P = principal amount, ( i = interest in percentage) , n = no. of compounding years.

P =$ 38000

Interest = 5% i.e., .05

years for compounding = 5 years. ( here interest in compounded annually.)

viz., = 38000 ( 1 + .05 )^5 - 1]

= 38000 [( 1.2763) - 1 ]

= 38000 * .2763 = 10499.

here, interest + principal = 38000 + 10499 = 48499

Hence option 4 is the correct solution.