Question

Colin invests £2350 into a savings account. The bank gives 4.2% compound interest for the first 4 years and 4.9% thereafter. How much will Colin have after 10 years to the nearest pound?​

Answer 1

£3,692

Explanation:

First four years

A = p(1 + r/n)^nt

P = £2350

r = 4.2% = 0.042

n = 1

t = 4

A = p(1 + r/n)^nt

= 2350(1 + 0.042/1)^1*4

= 2350(1 + 0.042)^4

= 2350(1.042)^4

= 2350(1.5789)

= 2770.42

A = £2770.42

Next 6 years

P = £2770.42

r = 4.9% = 0.049

n = 1

t = 6

A = p(1 + r/n)^nt

= 2770.42(1 + 0.049/1)^1*6

= 2770.42(1 + 0.049)^6

= 2770.42(1.049)^6

= 2770.42(1.3325)

= 3691.59

A = £3691.59

Approximately £3692