Question

Suppose that $9500 is placed in an account that pays 4% 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

Explanation:

We would apply the formula for determining compound interest which is expressed as

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

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = 9500

r = 4% = 4/100 = 0.04

n = 1 because it was compounded once in a year.

a) when t = 1 year

Then

A = 9500(1 + 0.04/1)^1 × 1

A = 9500(1.04)

A = $9880

b) when t = 2, then

A = 9500(1.04)^2

A = $10275.2