Question

Suppose that $3000 is placed in an account that pays 16% 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

Answer:

a) $3480

b) $4036.8

Step-by-step explanation:

The compound interest formula is given by:

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

Where A(t) is the amount of money after t years, P is the principal(the initial sum of money), r is the interest rate(as a decimal value), n is the number of times that interest is compounded per year and t is the time in years for which the money is invested or borrowed.

Suppose that $3000 is placed in an account that pays 16% interest compounded each year.

This means, respectively, that $P = 3000, r = 0.16, n = 1$

So

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

$A(t) = 3000(1 + \frac{0.16}{1})^{t}$

$A(t) = 3000(1.16)^{t}$

(a) Find the amount in the account at the end of 1 year.

This is A(1).

$A(t) = 3000(1.16)^{t}$

$A(1) = 3000(1.16)^{1} = 3480$

(b) Find the amount in the account at the end of 2 years.

This is A(2).

$A(2) = 3000(1.16)^{2} = 4036.8$