Question

A retiree invests $7,000 in a savings plan that pays 3% per year. What will the account balance be at the end of the first year?

a. $7,210
b. $7,210.50
c. $7,215
d. $7,215.50

Answer 1

The account balance at the end of the first year will be $7,210.

Step-by-step explanation:

To calculate the account balance at the end of the first year, we need to use the formula for compound interest:

A = P(1 + r/n)nt

where:

• A is the final account balance
• P is the principal amount
• r is the annual interest rate (expressed as a decimal)
• n is the number of times the interest is compounded per year
• t is the number of years the money is invested

In this case, P = $7,000, r = 0.03, n = 1, and t = 1. Plugging in these values into the formula:

A = $7,000(1 + 0.03/1)1 = $7,000(1.03) = $7,210

Therefore, the account balance at the end of the first year will be $7,210 (option a).