Question

You deposit $400 in an account earning 5% interest compounded annually. How much will you have in the account in 10 years?

Answer 1

Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. The amount that will be in the account after 10 years is $651.56.

What is compound interest?

Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. It's the outcome of reinvesting interest rather than paying it out so that interest is received on the principal plus previously collected interest in the next quarter.

$A = P(1+ \dfrac{r}{n})^{nt}$

The principal amount is $400 which is invested for a period of 10 years at an interest rate of 5% annually. Therefore, the amount in the account after 10 years will be,

$A = P(1+ \dfrac{r}{n})^{nt}\\\\A = \ 400 (1+ \dfrac{0.05}{1})^{1 \times 10})\\\\A=\ 651.56$

Hence, the amount that will be in the account after 10 years is $651.56.

Learn more about Compound Interest:

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