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1 September, 04:49

Michael's parents think he is the smartest baby ever born. They decide to place $18,000 into a college fund account for him when he is born. They are receiving a 4% interest compounded quarterly. At the end of 18 years, how much money will Michael have in his college account?

A. $37,847.79

B. $23,445.29

C. $36,464.70

D. $18,730.88

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  1. 1 September, 08:41
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    Step-by-step explanation:

    Initial amount deposited into the account is $18,000 This means that the principal is

    P = 18000

    It was compounded quarterly. This means that it was compounded 4 times in a year. So

    n = 4

    The rate at which the principal was compounded is 4%. So

    r = 4/100 = 0.04

    It was compounded for just 18 years. So

    t = 18

    The formula for compound interest is

    A = P (1+r/n) ^nt

    A = total amount in the account at the end of t years. Therefore

    A = 18000 (1+0.04/4) ^4 * 18

    A = 18000 (1.01) ^72 = $36847.79
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