Question

What would my final balance be if I put $425 in the bank for 48 months with an interest rate of 4.75%?

B.)$80.75
C.)$505.75
D.)$344.25

Needed for test corrections by tomorrow. ASAP!

Answer 1

I see choice (A) is missing, so I am giving you two solutions for you to understand and decide which one applies:

(1) Final balance with compound interest - meaning every year you add the year's interest to the principal and earn interest on the increased amount, etc. This is the actual case in real banks:

principal amount is $425 at (annual) interest rate 4.5%

interest amount for 1 year $19.13

Now, use the formula for compound interest

total balance = principal*(1+interest rate)^year

`\$425\cdot(1.0475)^4= \$511.68`

So the amount after 4 years with compound interest should be $511.68

(2) the silly way: earn interest of $20.1875 every year and keep it separately (not earning additional interest). That'll make 425+4*20.1875=$505.75 which is answer (C)

so if your (A) matches my solution (1) then go with that. If not, choose (C).