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What is the interest earned in a savingsaccount after 12 months on a balance of$2500 if the interest rate is 1% APYcompounded yearly?Round your answer to the nearest hundredth

User Joelpt
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1 Answer

3 votes

Answer:

$25

Step-by-step explanation:

The compound interest formula gives


A=P(1+(r)/(n))^(nt)

where

A = final balance

P = principle amount

r = interest rate /100

n = # of compounds applied per interval

t = # of intervals

The interest earned, therefore, is the difference of the final balance and principle.


A-P
=P(1+(r)/(n))^(nt)-P

Now in our case.

P = $2500

r = 1 / 100

n = 1 ( 1 year = 12 months )

t = 1 ( 12 months = 1 year )

Therefore, our formula gives


2500(1+(0.01)/(1))^1-2500

which simplifies to give


\begin{gathered} 2500(1+0.01)^{}-2500 \\ =\$25 \end{gathered}

This tells us that the interest earned is $25.

User Will Ness
by
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