Given: Initial investment 450 annual simple interest rate of 5%
Simple interest = Principal * interest rate * term Simple interest = 450 x 0.05 x 14 Simple Interest = 315
Balance after 14 years: 450 + 315 = $765
We can use compounding interest, compounded once a year.
Total balance = Principal * (1 + interest rate / number of compounding)^(# compounding * term)
Total balance = 450 * (1.05)¹⁴ Total balance = 450 * 1.98 Total balance = 891
Based on these scenarios, the formula that will be used is the second formula, compounding interest formula. The balance at the beginning of year 15 is $891.
I used 14 as the number of years because the problem states at the beginning of year 15. This means 15 has not yet begun and interest is not yet earned.
