How much money will be in a bank account for three years if $4 is deposited at an interest rate of 5% and the interest is compounded annually

QUESTION POSTED AT 01/06/2020 - 03:20 PM

Answered by admin AT 01/06/2020 - 03:20 PM

Problem

You deposit $4 into a bank account paying 5% simple interest per month. You left the money in for 3 years. Find the interest earned and the amount at the end of those 3 years?

Result

The interest is $7.2 and the amount is $11.2.

Explanation

STEP 1: Convert interest rate of 5% per month into rate per year.

rate per year = rate per month⋅12=5%⋅12=60%

STEP 2: Find an interest by using the formula I=P⋅i⋅t, where I is interest, P is total principal, i is rate of interest per year, and t is total time in years.

In this examplee P = $4, i = 60% and t = 3 years, so

III=P⋅i⋅t=4⋅0.6⋅3=7.2

STEP 3: Find an amount by using the formula A=P+I.

Since P = $4 and I = $7.2 we have

AAA=P+I=4+7.2=11.2
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