Question

If the APY of a savings account is 2.4% and if the principal in the savings account is $2,200 for an entire year, what will be the balance of the savings account after all the interest is paid for the year?

a) $2,200
b) $2,252.80
c) $2,205.28
d) $2,300

Answer 1

To find the balance of a savings account after a year at a 2.4% APY on a $2,200 principal, you multiply the principal by 1 plus the APY. The formula used is the final balance equals $2,200 times 1.024, which equals $2,252.80, making option b) the correct answer.

Step-by-step explanation:

If the APY (Annual Percentage Yield) of a savings account is 2.4% and the principal in the savings account is $2,200 for an entire year, we need to calculate the balance after interest is paid for the year. The APY represents the real rate of return earned on an investment, taking into account the effect of compounding interest. To find the balance, we use the formula for compound interest: Final Balance = Principal × (1 + APY)ⁱ, where n is the number of times the interest is compounded per year.

In this case, assuming interest is compounded annually (once per year), the calculation would be: Final Balance = $2,200 × (1 + 0.024), Final Balance = $2,200 × 1.024, Final Balance = $2,252.80. Using this calculation, the balance of the savings account after one year would be $2,252.80. Therefore, the correct answer is option b) $2,252.80.