Question

A new bank customer with $5,000 wants to open a money market account. The bank is offering asimple interest rate of 1.7%.a. How much interest will the customer earn in 20 years?b. What will the account balance be after 20 years?

Answer 1

The simple interest is given by the following formula:

`I=(P\cdot r\cdot t)/(100)`

Where I is the interest earned after t years, P is the principal (the initial value or money invested), r is the rate of interest and t is the time in years.

The known data is:

P=$5,000

r=1.7%

t=20 years

By replacing it into the formula we can find I:

`I=(5,000\cdot1.7\cdot20)/(100)=(170,000)/(100)=1,700`

a. In 20 years the customer will earn $1,700 interest

b. The account balance after 20 years will be: