Question

What is the balance after 15 years in a savings account that earns 2% interest compounded bimonthly when the initial deposit is 1000?

Answer 1

The amount will be equal to $1348.07. The correct option is A.

What is compound interest?

Compound interest is the interest levied on the interest. The formula for the calculation of compound interest is given as:-

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

Compound Interest Formula:

A = Account Balance

P = Principle/Initial Amount

r = Rate of Interest (decimal)

n = Number of times compounded (per year)

t = Number of Years

Given Information

Account Balance = ?

It is given that the balance after 15 years in a savings account earns 2% interest compounded bi-monthly when the initial deposit is 1000.

This is because we are gaining money, so the multiplier should be greater than 1. We already added 1, which is 100% so you simply add the 0.02 for the extra 2%.

Number of times compounded per year = 6

This is because it is being compounded bi-monthly, or once every 2 months. 12 months divided by 2 months is 6 months, so 6 times a year.

Number of years = 15

Solve by plugging the given values into the formula.

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

$\rm A = 1000(1+\dfrac{0.02}{6})^{6 \times 15}$

A = 1000 x (1.14)

A = $1348.07.

Therefore, the amount will be equal to $1348.07. The correct option is A.

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