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11 December, 16:07

On your second birthday, your parents deposited $500 into a savings account that earns 7% interest and compounds monthly. How much will be in the account when you are 18 years old

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  1. 11 December, 16:51
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    Answer: $1755 will be in the account when you are 18 years old.

    Step-by-step explanation:

    We would apply the formula for determining compound interest which is expressed as

    A = P (1+r/n) ^nt

    Where

    A = total amount in the account at the end of t years

    r represents the interest rate.

    n represents the periodic interval at which it was compounded.

    P represents the principal or initial amount deposited

    From the information given,

    P = $500

    r = 7% = 7/100 = 0.07

    n = 12 because it was compounded 12 times in a year.

    t = 18 years

    Therefore,

    A = 500 (1 + 0.07/12) ^12 * 18

    A = 500 (1 + 0.00583) ^216

    A = 500 (1.00583) ^216

    A = $1755
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