Question

Misha invests £4000 in a bank with a compound interest rate of 3.75% per annum. At the end of each year, Misha has to pay 20% tax on the interest made during that year. After 4 years Misha finds a ruby stone valued at £4500. Has he got enough money in the bank to afford to buy the ruby stone? If not, how much more would he need to save?

Answer 1

Misha has enough money in the bank to afford the ruby stone.

Step-by-step explanation:

To determine whether Misha has enough money in the bank to afford the ruby stone, we need to calculate the total amount of money he will have after 4 years, taking into account compound interest and taxes.

First, we can calculate the interest earned each year by multiplying the principal amount (£4000) by the interest rate (3.75%).

Year 1: £4000 × 0.0375 = £150

Year 2: (£4000 + £150) × 0.0375 = £163.13

Year 3: (£4000 + £150 + £163.13) × 0.0375 = £177.92

Year 4: (£4000 + £150 + £163.13 + £177.92) × 0.0375 = £193.86

Next, we can calculate the total amount of money Misha will have after 4 years by adding the interest earned each year to the initial deposit.

Total after 4 years: £4000 + £150 + £163.13 + £177.92 + £193.86 = £4684.91

Misha needs £4500 to buy the ruby stone. Since he has £4684.91 in the bank, he has enough money to afford the ruby stone.