Question

John inherited $5,000 from his grandfather. He put it in a savings account to buy a car when he turns 16. John is 13 right now. If his savings account earns 7% over the next 3 years, how much will be in the account when he turns 16?

Answer 1

If it is 7% per year, which is customary for stating interest rates, then:

Simple interest: 5000 + 5000 * .07 * 3 = 5000 * 1.21 = 5000 + 1050 = 6050
Compound interest: 5000 * 1.07^3 = 5000 * 1.225 = 6125 (approx)

If it is a total of 7% over three years (which is more realistic in today's environment),
5000 * 1.07 = 5350.

Answer 2

There will be $5,350 in the account when John turns 16.

Explanation:

As John inherited $5,000 and put it in a savings a count that offers a 7% interest over the next 3 years, we have to do the following calculation to know how much money will be in the account when he turns 16 (he is 13 right now):

5,000 x 7 / 100 = Interest rate

35,000 / 100 = Interest rate

350 = Interest rate

Interest rate + 5,000 = Total money over 3 years

350 + 5,000 = 5,350

There will be $5,350 in the account when John turns 16.