Question

Suppose Linda places $3500 in an account that pays 6% interest compounded each year

Assume that no withdrawals are made from the account.

Answer 1

Explanation:

The amount in the account at the end of 1 year is $3,480.

The amount in the account at the end of 2 years is $4,036.80.

The formula that can be used to determine the amount that would be in account after a period of time with annual compounding is:

FV = P (1 + r)^n

FV = Future value

P = Present value

R = interest rate

N = number of years

Amount in a year = $3000 x (1.16)^1 = $3,480

Amount in two years = $3000 x (1.16)^2 = $4,036.80