Question

Each year a certain amount of money is deposited in an account that pays an annual

the interest rate so that at the end of each year the balance in the account is multiplied by a
the growth factor of z = 1+r. $500 is deposited at the start of the first year, and an additional $200
is deposited at the start of the next year, and $600 at the start of the following year.
b. What is the amount (to the nearest cent) in the account at the end of three years if the
interest rate is 2%?

Answer 1

What is the amount (to the nearest cent) in the account at the end of three years if the interest rate is 2%? $1,350.68

Explanation:

DATA:

Deposits (at beginning of year):

Year 1 = $500

Year 2 = $200

Year 3 = $600

growth factor: z = 1 + r

interest rate is 2% so replace r with 2%. Growth factor equation is now:

z = 1 + 2%

z = 1.02

Year 1 account balance end of year = account balance + growth factor

= $500 + 1.02

= $ 510 account balance at end year 1

Year 2 account balance end of year = (previous year ending balance + current year deposit) * growth factor

= ($510 + $200) * 1.02

= $724.20

Year 3 account balance end of year = (previous year ending balance + current year deposit) * growth factor

= ($724.20 + $600) * 1.02

=$1,350.684

rounded: = $1,350.68 (This answer assumes no money has been withdrawn at any time.)