Question

A saving account pays 2% interest compounded annually. If $1,200 is deposited initially and again at the first of each year,how much money will be in the account three years after the initial deposit

Answer 1

The balance after 3 years will be $3745.93.

Explanation:

The rate of interest = 2% or 0.02

p = 1200

t = 3

n = 1

1st year:

Compound interest formula is :

`p(1+r/n)^(nt)`

=
`1200(1+0.02/1)^(3)`

=
`1200(1.02)^(3)`

= $1273.45

2nd year:

`1200(1+0.02)^(2)`

=
`1200(1.02)^(2)`

=$1248.48

3rd year:

`1200(1+0.02)^(1)`

=
`1200(1.02)^(1)`

=$1224

So, total amount will be =
`1273.45+1248.48+1224=3745.93` dollars

The balance after 3 years will be $3745.93.

Answer 2

3(1.02(1200))

3.06(1200) = 3672

You will have $3672