An investor deposits £1,000 into an account that pays interest at the rate of 3% per year. If the interest is credited to the account at the end of the year and the investor leaves the money in the account for 5 years, how much money will be in the account at the end of the fifth year?
Correct Answer: B
* Compound Interest Formula:A=P×(1+r)nA = P \times (1 + r)^nA=P×(1+r)n
* P: Initial principal (£1,000)
* r: Annual interest rate (3% or 0.03)
* n: Number of years (5)A=1,000×(1+0.03)5A = 1,000 \times (1 + 0.03)^5A=1,000×(1+0.03)5A=1,
000×(1.159274)A = 1,000 \times (1.159274)A=1,000×(1.159274)A=£1,157.63A = £1,157.63A=
£1,157.63
* Elimination of Other Options:
* All other values result from incorrect application of the formula or ignoring compounding.
References:
* ICWIM Module 2: Focus on time value of money and compounding.
