Henry Rector deposited $5,000 in a certificate of deposit that provides interest of 10% compounded quarterly if the amount is maintained for 5 years. How much will Henry have at the end of 5 years?
What will be an ideal response?
Answer: Because interest is compounded quarterly, the relevant interest rate is 2.5% and five years represents 20 quarters. Therefore,
FV = $5,000 × (1 + .025)20 = $5,000 × 1.63862 = $8,193
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