Question

Suppose that $3000 is placed in an account that pays 9% interest compounded each year. Assume that no withdrawals are made from the account. Follow the instructions below. Do not do any rounding. (a) Find the amount in the account at the end of 1 year. (b) Find the amount in the account at the end of 2 years.

Answer 1

Answer: (a) 3270 (b) 6270

Explanation:

Formula for compound interest: P (1 + r/100 ) ^n,

where P = principal, r = interest rate, n = number of years

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In question (a),

P = $3000

r = 9%

n = 1

3000 ( 1 + 9/100) ^1 = $3270

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In question (b),

P = $3000

r = 9%

n = 2

3000 ( 1 + 9/100) ^2 = $6270