Question

Kaitlyn anI Jamie Watson opened a savings account with a $2,000 deposit on January 1. The account pays interest at 6% compounded semiannually. On July 1, they deposited another $2,000. What is the amount of (a) their account on July 1, (b) the account one year later on January 1, and (c) the compound interest?

Answer 1

Explanation:

a) The amount of their account on July 1 can be found by calculating the balance of the account at the end of the first six months and then adding the second $2,000 deposit:

balance at end of first 6 months = $2,000 * (1 + 0.06/2)^2 = $2,060.60

total balance on July 1 = $2,060.60 + $2,000 = $4,060.60

b) The balance of the account one year later on January 1 can be found by calculating the balance at the end of the second six months and adding it to the balance at the end of the first six months:

balance at end of second 6 months = $2,060.60 * (1 + 0.06/2)^2 = $2,123.36

total balance on January 1 = $2,123.36 + $2,060.60 = $4,183.96

c) The compound interest can be found by subtracting the initial deposit from the balance one year later:

compound interest = $4,183.96 - $2,000 = $2,183.96