Question

You have deposited $1,000 in your account. Your bank pays you 5 percent interest compounded annually. You need to find the total amount at the end of three years. What is the principal$? What is the interest rate? Find the interest earned after 1 year.​

Answer 1

The principal is the deposit amount, which is $1000.

The interest rate is 5% as mentioned in the instructions.

Let's find out how much is in the account after 3 years.

A = P*(1+r/n)^(n*t)

A = 1000*(1+0.05/1)^(1*3)

A = 1157.625

A = 1157.63

We find that $1,157.63 is in the account after 3 years.

Now let's find how much is in the account after 1 year.

A = P*(1+r/n)^(n*t)

A = 1000*(1+0.05/1)^(1*1)

A = 1050

Therefore $1,050 is in the account after 1 year.

Subtract off the deposit, aka principal, to get the interest earned.

1050-1000 = 50

After 1 year, you earned $50 in interest.