Gabe deposits 7,000 in a certificate of deposit. The annual interest rate is 4% , and the interest will be compounded quarterly. How much will the certificate be worth in 5 years? Round your answer to two decimal places.

Solution

G ab e d e p os i t s 7, 000 in a cer t i f i c a t e o f d e p os i t . T h e ann u a l in t eres t r a t e i s 4%, an d t h e in t eres t w i ll b e co m p o u n d e d q u a r t er l y . Ho w m u c h w i ll t h e cer t i f i c a t e b e w or t h in 5 ye a rs ? R o u n d yo u r an s w er t o tw o d ec ima l pl a ces .

Amount : 8541.33

Solution steps

Translate the problem into an equation:

A = 7000 (1 + \frac{0.04}{4})^{4 \cdot 5}

7000 (1 + \frac{0.04}{4})^{4 \cdot 5} = 8541.33027 \dots

Amount : 8541.33027 \dots

Round

8541.33027 \dots

to the nearest 2 decimal places:

8541.33

Amount : 8541.33