Gabe deposits $7,000 in a certificate of deposit. The annual interest rate is 4%, and the interest will be compounded monthly. How much will the certificate be worth in 5 years?
Round your answer to the nearest cent.
Do NOT round until you calculate the final answer

To calculate how much Gabe's certificate of deposit (CD) will be worth in 5 years with monthly compounded interest, we use the formula for compound interest:

\[
A = P \left(1 + \frac{r}{n}\right)^{nt}
\]

Where:
- $A$ is the future value of the investment (the amount the CD will be worth).
- $P$ is the principal amount (the initial deposit), which is $7,000.
- $r$ is the annual interest rate (4% or 0.04 as a decimal).
- $n$ is the number of times the interest is compounded per year (monthly compounding means $n = 12$).
- $t$ is the time the money is invested for in years (5 years).

Now, let's plug in the values and calculate the future value $A$:

\[
A = 7000 \left(1 + \frac{0.04}{12}\right)^{12 \times 5}
\]

Let's calculate the result step by step.The certificate of deposit will be worth approximately **$8,546.98** after 5 years.

Would you like more details on the calculation or have any further questions?

Here are 5 related questions to consider:
1. What is the effect of compounding quarterly instead of monthly?
2. How much more would Gabe earn if the interest rate were 5%?
3. How much interest does Gabe earn in total over 5 years?
4. What if Gabe withdraws the interest every month instead of letting it compound?
5. How does the formula change if the interest is compounded continuously?

**Tip**: Always check whether interest is compounded annually, quarterly, monthly, or daily as it significantly affects the final amount.

Gabe deposits $7,000 in a certificate of deposit. The annual interest rate is 4%, and the interest will be compounded monthly. How much will the certificate be worth in 5 years? Round your answer to the nearest cent. Do NOT round until you calculate the final answer.

Learn how to calculate the future value of a $7,000 certificate of deposit at an annual interest rate of 4%, compounded monthly over 5 years. This problem uses the compound interest formula and provides a step-by-step solution. Suitable for high school students studying financial mathematics.

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