Question

An account with a $250 r balance accrues 2% annually. If no deposits or withdrawals are made, what will happen to the interest?

Answer 1

Answer:

As the Principal, increases each year, the value of Interest also rises each year

Step-by-step explanation:

This is a question of compound interest.

The initial Principal amount is 250 dollars.

In Compound Interest, each year the Principal amount gets changed as the interest gets added up into the Principal to form the new Principal.

Also no, money is being deposited or withdrawn so the principal increases via compound interest only.

Formula for compound interest is

A=P$(1+\frac{r}{100} )^{n}$

where

A=Amount or the new principal accumulated after n years

P=Initial Principal Amount

r= Rate of Interest compounded annually

n=Number of years

As the Principal, increases each year, the value of Interest also rises each year, see the graph for more information.