Question

You open a savings account starting with $25. then, you deposit $100 into a savings account, which earns a 5% yearly interest rate, how much is in your account after two years after the initial deposit?

1) $125
2) $130
3) $135
4) $140

Answer 1

Using compound interest, the savings account would have $137.81 after two years. However, with simple interest, it would contain $135, which is one of the given options.

Step-by-step explanation:

To calculate the amount in the savings account after two years, we need to apply the concept of compound interest. The starting balance is $125 ($25 initial + $100 deposit). With a yearly interest rate of 5%, the formula to calculate the amount after two years is Principal x (1 + Interest rate)^Number of years.

So after one year, the balance would be: $125 x (1 + 0.05) = $131.25. After two years, using the balance from the first year, the calculation is: $131.25 x (1 + 0.05) = $137.81.

However, since your options don't include $137.81, it seems like the question might be looking for the scenario with simple interest instead of compound interest. By using simple interest, the calculation for two years is: $100 x 0.05 x 2 = $10 of interest, plus the initial $125, making the total $135.