Question

Clare has $5,003 in a savings account that earns 8% interest, compounded annually.

To the nearest cent, how much interest will she earn in 4 years?

Use the formula B = p(1 + r)t, where B is the balance (final amount), p is the principal (starting amount), r is the interest rate expressed as a decimal, and t is the time in years.

Answer 1

Answer: Clare earned $6806.53.

Explanation:

The formula given to us is the formula for compounded interest.

You can substitute the values given in the first part of the problem into the equation to find B, the final amount:

`B = p*(1+r)^t\\\\B = 5003 * (1 + 0.08)^4`

Note that 8% interest is expressed as 0.08 because it is a percentage of a whole number.

Now, use a calculator to raise 1.08 to the fourth degree to get this:

`B = 5003 * 1.360488\\B = 6806.526`

As such, Clare earned $6806.53 in interest after 4 years.