Question

Suppose Salma places $5500 in an account that pays 2% interest compounded each year. Assume that no withdrawals are made from the account.
a)find year one
b) find year 2

Answer 1

Answer:

Part a) $\ 5,610$  

part b) $\ 5,722.20$  

Step-by-step explanation:

we know that    

The compound interest formula is equal to  

$A=P(1+\frac{r}{n})^{nt}$  

where  

A is the Final Investment Value  

P is the Principal amount of money to be invested  

r is the rate of interest  in decimal

t is Number of Time Periods  

n is the number of times interest is compounded per year

Part a) Find the final investment year one

in this problem we have  

$t=1\ year\\ P=\ 5,500\\ r=2\%=2/100=0.02\\n=1$  

substitute in the formula above

$A=5,500(1+\frac{0.02}{1})^{1*1}$  

$A=5,500(1.02)^{1}$  

$A=\ 5,610$  

Part b) Find the final investment year 2

in this problem we have  

$t=2\ years\\ P=\ 5,500\\ r=2\%=2/100=0.02\\n=1$  

substitute in the formula above

$A=5,500(1+\frac{0.02}{1})^{1*2}$  

$A=5,500(1.02)^{2}$  

$A=\ 5,722.20$