PSAT/NMSQT Exam Prep

Category - Preliminary SAT/National Merit Scholar Qualifying Test Prep

If Martin invests $20,000 for 20 years and his investment earns 20% interest compounding quarterly, what will it be worth at the end of his investment period?
  1. $991,228.82
  2. $120,000.00
  3. $244,529.20
  4. $424,872.36
Explanation
Answer: A - A $20,000 investment that earns 20% interest compounded quarterly would be worth $991,228.82 at the end of a 20-year investment period. The equation for compound interest is A = P(1 + r/n)nt in which A is the amount including interest, P is the principle investment, r is the interest rate expressed in decimal form (0.12), n is the number of times interest is added per year, and t is the number of years for which the principal is invested. A = $20,000(1+.2/4)80. = $991,228.82.
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