A home improvement firm has quoted a price of $9,800 to fix up John\'s backyard.

Question

A home improvement firm has quoted a price of $9,800 to fix up John's backyard. Five years ago, John put $7,500 into a home improvement account that has earned an average of 5.25% per year. Does John have enough money in his account to pay for the backyard fix-up? Answer Yes; John now has exactly $9,800 in his home improvement account. No; John has only $9,687 in his home improvement account. Yes; John now has $10,519 in his home improvement account. There is not enough information to answer this question.

Explanation / Answer

Since the interest rate is compounded yearly at 5.25 %, you can use the formula Future Value= Present Value ( 1 + interest)^years which gives you

7500*(1+.0525)^5 = 9687

Thus the answer is No; John has only $9,687 in his home improvement account.

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