Question

The principal represents an amount of money deposited in a savings account subject to

Answer 1

Compound interest is the adding of interest to the principle sum of a loan or deposit. The amount of money in the account after 2 years is $7426.30, while the interest earned in 2 years is $426.30.

What is compound interest?

Interest on interest, or compound interest, is the adding of interest to the principle 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.,

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

where A is the final amount

P is the principal amount

r is the rate of interest

n is the number of times interest is charged in a year

t is the number of years

Given the principal amount is $7,000 while the rate of interest is 3% which is compounded annually.

A. The amount of money in the account after 2 years will be,

A = $7000(1 + 0.03)² = $7426.30

B. The amount of interest earned is will be,

The amount of interest earned = $7426.30 - $7000 = $426.30

Hence, the amount of money in the account after 2 years is $7426.30, while the interest earned in 2 years is $426.30.

Learn more about Compound Interest:

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