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?

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?
A . £1,150.00
B . £1,157.63
C . £1,159.27
D . £1,276.28

View Answer

Answer: B

Explanation:

Compound Interest Formula:A=P×(1+r)nA = P imes (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 imes (1 + 0.03)^5A=1,000×(1+0.03)5A=1,000×(1.159274)A = 1,000 imes

(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.

Reference: ICWIM Module 2: Focus on time value of money and compounding.