Question

Dan invests £11000 into a savings account. The bank gives 3.9% compound interest for the first 3 years and 4.5% thereafter. How much will Dan have after 7 years to the nearest pound?

Answer 1

Answer: £14378

Step-by-step 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 = £11000

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

For the first 3 years,

r = 3.9% = 3.9/100 = 0.039

Therefore,

A = 11000(1+0.039/1)^1 × 3

A = 11000(1.039)^3

A = $12338

The new principal is 12338

For the next 4 years,

A = 12338(1.039)^4

A = 14378