Question

You deposit 500$ in a savings account that earns 2.5 interest compounded yearly. Find the balance in the account after the given amount of time A. 1 yearB. 5 years C. 20 years

Answer 1

In order to find the balance after the given time, use the following formula:

I = P(1 + r/n)^(t·n)

where

r: interes rate = 2.5% = 0.025

n: frequency = 1

t: time = 1, 5, 20

P: principal investment = 500

replace the previous values of the parameters into the formula for I:

A. 1 year:

I = $500(1 + 0.025/1)^(1·1) = $512.5

B. 5 years:

I = $500(1 + 0.025)^(5·1) = $565.7

C. 20 years

I = $500(1 + 0.025)^(20·1) = $819.3