Use the compound interest formula, . kelly opened a savings account with $500 she received at eighth grade graduation 4 years ago. the account pays 2.5 percent compounded daily. how much should be in the account now? round to the nearest dollar.
The formula for calculating annual compound interest, including principal sum, is:
A = P (1 + r/n)^(nt)
Where:
A = the future value of the investment
P = the principal investment amout or the initial deposit
r = the annual interest rate
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed.
So we have that P = $500 r = 2.5% = 0.025, t = 4 years and n = 365 (since the interest is compounded daily).
Plugging into the eqn we have
A = 500 ( 1 + (0.025)/(365))^(365*4)
A = $552.58
