Question

Paul leaves £4000 in the bank for two years. It earns compound interest of 5% per year. Calculate the totals amount Paul has in the bank at the end of the two years

Answer 1

£4410

Explanation:

Step one:

given data

Principal P= £4000

Rate= 5%= 0.05

time t= 2 years

Final amount A= ??

Required

The final amount

Step two:

The expression for the final amount of compound interest is

`A= P(1+r)^t\\\\A=4000(1+0.05)^2\\\\A=4000(1.05)^2\\\\A=4000*1.1025`

A=£4410