Explanation:
To calculate the value of Ella's investment at the end of 2 years, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
where A is the final amount, P is the principal (initial amount), r is the annual interest rate as a decimal, n is the number of times the interest is compounded per year, and t is the time in years.
For the first year, we have:
P = £7000
r = 0.03 (3% as a decimal)
n = 1 (compounded annually)
t = 1 (one year)
Substituting these values into the formula, we get:
A₁ = £7000(1 + 0.03/1)^(1x1)
A₁ = £7210
Therefore, the investment is worth £7210 after one year.
For the second year, we have:
P = £7210 (the new principal after one year)
r = 0.015 (1.5% as a decimal)
n = 1 (compounded annually)
t = 1 (one year)
Substituting these values into the formula, we get:
A₂ = £7210(1 + 0.015/1)^(1x1)
A₂ = £7323.15
Therefore, the investment is worth £7323.15 at the end of two years.
Therefore, the value of Ella's investment at the end of 2 years is £7323.15.