Compound Interest: Investing for the Future

How much money will be in the account at the end of 5 years?

If $11,500 per quarter is invested in an account that earns a nominal annual interest rate of 11% compounded monthly, how much money will be in the account at the end of 5 years?

Answer:

An account with $11,500 invested at an 11% nominal annual interest rate compounded monthly will have $19,448 at the end of 5 years.

Compound interest is a powerful financial tool that allows your money to grow over time. By investing $11,500 per quarter with an 11% annual interest rate compounded monthly, you can see significant returns over a 5-year period. The account's balance will reach $19,448 by the end of this term.

To calculate this, you can use the formula for compound interest: initial deposit x (1 + monthly interest rate)^(months). In this case, the monthly interest rate is 11%/12, and the number of months is 5 years x 12 months. By plugging these values into the formula, you can see how your investment grows exponentially over time.

If the same investment were to be converted into an annual compounded rate, the final balance at the end of 5 years would be $18,292. This slight difference compared to monthly compounding is due to some interest earned in one year being reinvested in the following year.

Compound interest is a valuable concept to understand when it comes to financial planning and investing for the future. By harnessing the power of compound interest, you can watch your money grow and work for you over time. Make informed decisions and explore opportunities to leverage compound interest for your financial growth.