Question

Suppose you deposit $1400 in an account that pays 7.5% annual interest, compounded monthly. At the end of the first year, you deposit another $1400, but you don't make any other deposits or withdrawals. How much will be in the account at the end of the second year?

Answer 1

To find the amount in the account at the end of the second year, calculate the growth of the initial deposit and the additional deposit separately. The amount after the second year is $1504.93.

Step-by-step explanation:

To calculate the amount in the account at the end of the second year, we can break down the problem into two parts: the initial deposit and the additional deposit.

First, let's calculate the amount after one year. The initial deposit of $1400 will grow at a rate of 7.5% compounded monthly. Therefore, the amount after one year is $1400 * (1 + 0.075/12)^12 = $1484.81.

Next, at the beginning of the second year, an additional deposit of $1400 is made. This additional deposit will also grow at a rate of 7.5% compounded monthly for one year. Therefore, the amount after the second year is $1484.81 + $1400 * (1 + 0.075/12)^12 = $1504.93.