Question

Save-A-Lot Bank is advertising a rate of 2.5% interest compounded annually.If $2000 is invested, how much money, to the nearest cent, will be inthe account after 10 years.

Answer 1

Question on Compound Interest.

The formula below can be used to calculate the compound interest;

`\begin{gathered} A\text{ = p(1+}(r)/(100))^n \\ \text{Where A = amount,(\$) (that is, the money that will be in the account)} \\ r=\text{interest rate per annum, (\%)} \\ P=Pr\text{incipal, (\$), ( that is, the money invested)} \\ n=\text{ number of periods, years, } \end{gathered}`

Where A= ? , P =$2000, r =2.5% and n = 10 years

Substituting these values into the formula above, we get

Note that: Amount = Principal + Interest, though not needed in this question.

`\begin{gathered} A=P(1+(r)/(100))^n_{} \\ \\ A=2000(1+(2.5)/(100))^(10) \\ \\ A=2000(1+0.025)^(10) \\ A=2000(1.025)^(10)\text{ }=\text{ 2560.169 }\approx\text{ \$2560.17} \end{gathered}`

Thus, the correct answer is $2560.17