Question

You put $500 in an account that earns 4% annual interest. The interest earned each year is added to the principal to create a new principal. Find the total amount in your account after each year for 3 years.

A) Year 1 = $
B) Year 2 = $
C) Year 3 = $

Answer 1

A) $ 520

B) $ 540.8

C) $ 562.432

Explanation:

Since, the amount formula in compound interest calculated annually,

`A=P(1+r)^t`

Where,

P = principal amount,

r = annual interest rate,

t = number of years,

A) P = $ 500, r = 4% = 0.04, t = 1,

`A=500(1+0.04)^1 = 500(1.04)=\$ 520`

B) P = $ 520, r = 0.04, t = 1,

`A=520(1+0.04)=520(1.04)=\$ 540.8`

C) P = $ 540.8, r = 0.04, t = 1,

`A=540.8(1+0.04)=540.8(1.04)=\$ 562.432`