Question

Brian invests £1900 into a savings account. The bank gives 3.5% compound interest for the first 2 years and 4.9% thereafter. How much will Brian have after 6 years to the nearest pound?

Answer 1

`\£2,465`

Explanation:

we know that

The compound interest formula is equal to

`A=P(1+(r)/(n))^(nt)`

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

n is the number of times interest is compounded per year

step 1

Find the final investment for the first two years

we have

`t=2\ years\\ P=\£1,900\\ r=0.035\\n=1`

substitute in the formula above

`A=\£1,900(1+(0.035)/(1))^(1*2)`

`A=\£1,900(1.035)^(2)`

`A=\£2,035.33`

step 2

Find the final investment for the next 4 years

we have

`t=4\ years\\ P=\£2,035.33\\ r=0.049\\n=1`

substitute in the formula above

`A=\£2,035.33(1+(0.049)/(1))^(1*4)`

`A=\£2,035.33(1.049)^(4)`

`A=\£2,464.55`

Round to the nearest pound

`\£2,464.55=\£2,465`