Question

What is the total interest earned in two years on an account containing $500 at 3.5% interest, compounded annually?

Answer 1

Answer: Compound interest is $36.61

Step-by-step explanation:

Initial amount deposited into the account is $500 This means that the principal,

P = 500

It was compounded annually. This means that it was compounded once in a year. So

n = 1

The rate at which the principal was compounded is 3.5%. So

r = 3.5/100 = 0.035

It was compounded for 2 years. So

t = 2

The formula for compound interest is

A = P(1+r/n)^nt

A = total amount in the account at the end of t years. Therefore

A = 500 (1+0.035/1)^1×2

A = 500(1.035)^2 = $535.61

Compound interest = 535.6 - 500 = $35.61

Answer 2

$35.
500 x .035 = 17.5 < - 1 year interest
17.5x2 = 35 <- 2 years