Question

Lou has an account with $10,000 which pays 6% interest compounded annually. If to that account, Lou deposits $5,000 at the beginning of each year for 2 years, find out the amount in the account after the last deposit. a. $10,300.00 c. $21,500.00 b. $20,300.00 d. $22,154.00

Answer 1

Option d. $22154 is the right answer.

Explanation:

To solve this question we will use the formula
`A=P(1+(r)/(n))^(nt)`

In this formula A = amount after time t

P = principal amount

r = rate of interest

n = number of times interest gets compounded in a year

t = time

Now Lou has principal amount on the starting of first year = 10000+5000 = $15000

So for one year
`A=15000(1+((6)/(100))/(1))^(1*1)`

`= 15000(1+.06)^(1)`

`= 15000(1.06)` = $15900

After one year Lou added $5000 in this amount and we have to calculate the final amount he got

Now principal amount becomes $15900 + $ 5000 = $20900

Then putting the values again in the formula

`A=20900(1+((6)/(100))/(1))^(1*1)`

`= 20900(1+.06)^(1)`

`= 20900(1.06)=22154`

So the final amount will be $22154.