An employee put $5,000 in a retirement account that offers 9% interest compounded annually. The employee makes no additional deposits or withdraws. Which is the closets to the interest the employee will have earned at the end of 5 years?
An employee put $5,000 in a retirement account that offers 9% interest compounded annually. The employee makes no additional deposits or withdraws. Which is the closets to the interest the employee will have earned at the end of 5 years?
$229.09
$450
$2,250.00
$2,693.12
The correct answer is $2,693.12.
To calculate the interest earned after 5 years, you can use the formula for compound interest:
A = P(1 + r/n)^(nt)
where:
A = the amount of money accumulated after n years, including interest
P = the principal amount (the initial deposit or investment)
r = the annual interest rate (as a decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested for
In this case:
P = $5,000
r = 9% = 0.09
n = 1 (compounded annually)
t = 5 years
A = $5,000(1 + 0.09/1)^(1*5)
A = $5,000(1.09)^5
A = $5,000(1.53862)
A = $7,693.12
So the interest earned after 5 years would be $7,693.12 - $5,000 = $2,693.12.