Question

Fred deposited $1,000 into an account that earns 2 percent, compounded annually. How much money will he have in 5 years?

$1000
$1100
$1552
$1291
$1126

Answer 1

2% of $1000 is $20

20 * 5 = 100

100 + 1000 = 1100

$1100 is your answer

Answer 2

After 5 years, Fred will have $1,100

Explanation:

Simple interest = PRT/100

Where p=principal R =rate and T =time (in year)

In the first year,

p=1000 R = 2% T=1

Interest = PRT/100

=$1000 × 2×1 / 100

= $2000/100

=$20

In year 2,

p=$1020 R=2% T =1

Interest = PRT/100

=$1020 × 2×1 / 100

= $2040/100

=$20.4

In year 3,

p=$1040.4 R=2% T =1

Interest = PRT/100

=$1040.4 × 2×1 / 100

= $2080.8/100

=$20.808

In year 4,

p=$1061.208 R=2% T =1

Interest = PRT/100

=$1061.208 × 2×1 / 100

= $2122.416/100

=$21.224

In year 5,

p=$1082.432 R=2% T =1

Interest = PRT/100

=$1082.432 × 2×1 / 100

= $2164.864/100

=$21.649

Amount= $1082.432 + $21.649

=$1,104.081

≈$1100

After 5 years, Fred will have $1,100