Question

Ava has $100 in a savings account. The interest rate is 5%, compounded annually.To the nearest cent, how much interest will she earn in 2 years?

Answer 1

Given:

Ava has $100 in a savings account. The interest rate is 5%, compounded annually.

so, P = 100

r = 5% = 0.05

n = 1

We will find the interset that she will earn in 2 years

So, t = 2

we will use the following formula:

`Interest(I)=P\cdot(1+(r)/(n))^(nt)-P`

Substitute with the given data:

`\begin{gathered} I=100\cdot(1+(0.05)/(1))^(1\cdot2)-100 \\ \\ I=100\cdot1.05^2-100=100(1.05^2-1)=10.25 \end{gathered}`

So, the answer will be the interest in 2 years = $10.25