Suppose your friend's parents invest $ 20,000 in an account paying 6 % compounded annually. What will the balance be after 10 years?
What is 20000(1.06)^10 ?
To calculate the balance after 10 years on an account with compound interest, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment
P = the initial principal amount ($20,000 in this case)
r = the annual interest rate (6% or 0.06 as a decimal)
n = the number of times interest is compounded per year (annually in this case)
t = the number of years
Plugging in the values:
A = 20000(1 + 0.06/1)^(1*10)
Now let's simplify this equation step by step:
1 + 0.06/1 = 1.06
1*10 = 10
A = 20000(1.06)^10
Now we can calculate the value using a calculator or some spreadsheet software:
A = 20000 * (1.06)^10
The balance after 10 years will be the result of this calculation.