The Importance of Compound Interest in Investment
What is the formula to find the total account balance of an investment with compound interest?
Given the data: To calculate the total account balance of an investment with compound interest, use the formula A = Principal(1 + interest rate)^time. For a $5,000 investment at a 2.5% rate compounded annually for 10 years, the correct formula is A = 5000(1 + 0.025)^10. Which formula should be used to find the total account balance of an investment?
Answer:
The formula to find the total account balance of an investment with compound interest is A = Principal(1 + interest rate)^time. In the given data, for a $5,000 investment at a 2.5% rate compounded annually for 10 years, the correct formula to use is A = 5000(1 + 0.025)^10.
Compound interest plays a crucial role in investment growth and it is important to understand how to calculate the total account balance using the formula A = Principal(1 + interest rate)^time. When making an investment, especially for the long term, compound interest can significantly increase the returns on your initial investment.
In the example provided, the correct equation to find the total account balance after 10 years for a $5,000 investment at a 2.5% rate compounded annually would be:
A = 5000(1 + 0.025)^10
By plugging in the values for the principal amount, interest rate, and time into the formula, we can calculate the total account balance accurately.
Therefore, understanding compound interest and how to calculate it is essential for investors to make informed decisions and maximize their profits over time.