Question

An account initially containing $600 earns a yearly nominal interest rate of 5%. What is the balance after 1 year if the interest is compounded?

a) $630
b) $615
c) $625
d) $605

Answer 1

The balance after 1 year if the interest is compounded annually would be $630. Option a is correct.

Step-by-step explanation:

The formula for compound interest is given by:

`\[A = P * \left(1 + (r)/(n)\right)^(n * t)\]`

Where:

• A is the amount of money accumulated after n years, including interest.
• P is the principal amount (the initial amount of money).
• r is the annual interest rate (in decimal).
• n is the number of times that interest is compounded per year.
• t is the time the money is invested for, in years.

Given:

• P = 600 (initial amount)
• r = 5% = 0.05 (annual interest rate)
• n = (compounded yearly)
• t = 1 year

Using the formula:

A =
`600 * \left(1 + (0.05)/(1)\right)^(1 * 1)`

A = 600 x (1 + 0.05)¹

A = 600 x 1.05

A = 630

Therefore, the correct answer is (a) $630.