Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you make no withdrawals, what is the balance in your account at the end of four years?
Round your answer to the nearest dollar.
A)$1,200
B)$1,216
C)$1,020
D)$1,050

Question

Quizplus · Accepted Answer

After one year, the balance will be $1,000 x 1.05 = $1,050. 
After two years, the balance will be $1,050 x 1.05 = $1,102.50. 
After three years, the balance will be $1,102.50 x 1.05 = $1,157.63. 
After four years, the balance will be $1,157.63 x 1.05 = $1,215.51. 
Rounding to the nearest dollar gives a final balance of $1,216. Therefore, the correct answer is B. Using the formula for compound interest, we have:
A = P(1 + r/n)^(nt)
where A is the amount after t years, P is the initial principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.
In this case, P = $1,000, r = 5%, n = 1 (since interest is compounded once a year), and t = 4. We can plug in these values and simplify:
A = $1,000(1 + 0.05/1)^(1*4)
A = $1,000(1.05)^4
A = $1,215.51
Rounding to the nearest dollar, we get $1,216, which is choice B. Therefore, the best choice is B.

Suppose You Deposit $1,000 Today in an Account That Pays