Question

Suppose Chau places $8000 in an account that pays 19% interest compounded each year.Assume that no withdrawals are made from the account.Follow the instructions below. Do not do any rounding.(a) Find the amount in the account at the end of 1 year.$(b) Find the amount in the account at the end of 2 years.

Answer 1

In order to calculate the final amount in each case, we can use the formula below for compound interest:

$A=P(1+r)^t$

Where A is the final amount after t years, P is the initial amount and r is the interest rate.

(a)

Using P = 8000, r = 0.19 and t = 1, we have:

$\begin{gathered} A=8000(1+0.19)^1\\ \\ A=8000\cdot1.19\\ \\ A=9520 \end{gathered}$

(b)

Using t = 2, we have:

$\begin{gathered} A=8000(1+0.19)^2\\ \\ A=8000(1.19)^2\\ \\ A=11328.80 \end{gathered}$