Question

Joan invests £6000 in a savings account and pays compound interest at the rate of 2.4% for the first year and 1.7% for each extra year. Work out Joan's investment at the end of 3 years.

Answer 1

Joan's investment grows by applying a 2.4% interest rate the first year and 1.7% for the subsequent two years. By the end of three years, the investment reaches £6347.15 thanks to compounding interest.

Step-by-step explanation:

Calculating Compound Interest Over Multiple Years

When calculating compound interest over multiple years where the interest rate changes, you need to apply each year's interest rate for the corresponding year. To find Joan's investment at the end of 3 years, we do the following:

1. Apply the first year's interest rate of 2.4%. The new amount after the first year will be: £6000 × (1 + 0.024) = £6144.
2. The second and third years have an interest rate of 1.7%, so we compound the new amount for two more years. After the second year: £6144 × (1 + 0.017) = £6244.63.
3. Finally, compound the amount from the second year for one more year to get the total after the third year: £6244.63 × (1 + 0.017) = £6347.15.

Thus, at the end of 3 years, Joan's investment will have grown to £6347.15.