To calculate the future value of an investment compounded annually, you can use the formula:
\[ A = P \left(1 + \frac{r}{n}\right)^{nt} \]
where:
- \( A \) is the future value of the investment/loan, including interest.
- \( P \) is the principal amount (initial deposit).
- \( r \) is the annual interest rate (as a decimal).
- \( n \) is the number of times that interest is compounded per unit \( t \).
- \( t \) is the time the money is invested/borrowed for, in years.
In this case:
- \( P = $5,000 \)
- \( r = 0.02 \) (2% expressed as a decimal)
- \( n = 1 \) (compounded annually)
- \( t = 5 \) years
Now, plug in these values into the formula:
\[ A = 5000 \left(1 + \frac{0.02}{1}\right)^{1 \times 5} \]
Calculate this expression to find the future value, and round it to the nearest cent.
