Question

A new bank customer with ​$2,500 wants to open a money market account. The bank is offering a simple interest rate of ​1.8%. How much interest will the customer earn in 10 ​years? What will the account balance be after 20 ​years?

Answer 1

The student will earn $450 in simple interest after 10 years with a 1.8% interest rate on a $2,500 deposit. After 20 years, the simple interest will accumulate to $900, making the total account balance $3,400.

Step-by-step explanation:

To calculate the amount of simple interest earned over a certain period, you use the formula I = PRT, where I is the interest, P is the principal amount, R is the rate of interest per year as a decimal, and T is the time in years. In this case, the student would like to determine the interest earned and the final account balance for a money market account over a 10-year and a 20-year period.

Interest Earned in 10 Years

For the first 10 years, the calculation follows the simple interest formula. The customer has P = $2,500, the rate R = 1.8% or 0.018 as a decimal, and T = 10 years.

I = $2,500 × 0.018 × 10 = $450

Thus, the interest earned in 10 years will be $450.

Account Balance After 20 Years

For the next 10 years, the same process is used to calculate the additional interest for a total of 20 years.

I = $2,500 × 0.018 × 20 = $900

Therefore, the final account balance after 20 years would be the principal plus the interest earned which equals $3,400 ($2,500 + $900).