Pete invests $10,000 in a certificate of deposit that earns 3% interest, compounded yearly. What will be the compounded income at the end of 5 years
what is 10000(1.03)^5 ??
now subtract the initial 10,000
the rest is the income.
10
To calculate the compounded income at the end of 5 years, we need to 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 (the amount Pete invested), which is $10,000 in this case
r = the annual interest rate (expressed as a decimal), which is 3% or 0.03 in this case
n = the number of times that interest is compounded per year, which is once per year in this case
t = the number of years, which is 5 in this case
Substituting the given values into the formula, we have:
A = 10,000(1 + 0.03/1)^(1*5)
Simplifying the formula, we get:
A = 10,000(1 + 0.03)^5
To calculate this, we can use a calculator or a spreadsheet. Evaluating this expression, we find:
A = 10,000(1.03)^5
A = 10,000(1.159274)
Therefore, the compounded income at the end of 5 years will be $11,592.74.