Question

Suppose Salma places $5500 in an account that pays 2% interest compounded each year. Assume that no withdrawals are made from the account.

a)find year one
b) find year 2

Answer 1

Part a)
`\$5,610`

part b)
`\$5,722.20`

Explanation:

we know that

The compound interest formula is equal to

`A=P(1+(r)/(n))^(nt)`

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

n is the number of times interest is compounded per year

Part a) Find the final investment year one

in this problem we have

`t=1\ year\\ P=\$5,500\\ r=2\%=2/100=0.02\\n=1`

substitute in the formula above

`A=5,500(1+(0.02)/(1))^(1*1)`

`A=5,500(1.02)^(1)`

`A=\$5,610`

Part b) Find the final investment year 2

in this problem we have

`t=2\ years\\ P=\$5,500\\ r=2\%=2/100=0.02\\n=1`

substitute in the formula above

`A=5,500(1+(0.02)/(1))^(1*2)`

`A=5,500(1.02)^(2)`

`A=\$5,722.20`