Question

Hei has $1,400 in a retirement account earning 4% interest compounded annually. Each year after the first, she makes additional deposits of $1,400. After 5 years, what was her account balance if she did not make any withdrawals? Round each year's interest to the nearest cent if necessary. HELP ASAP

Answer 1

$7886.16

Explanation:

If the balance increases by 4%, it will be 104% of the original amount. 104% as a decimal is 1.04. Therefore, to calculate the balance with annual compound interest applied, multiply the balance of the account by 1.04 each year.

As Hei makes additional deposits of $1,400 for each year after the 1st year, add $1,400 to the account balance from year 2 onwards before adding the interest.

Let A = account balance

After 1 year

A = 1400 × 1.04 = $1456

After 2 years

A = (1456 + 1400) × 1.04 = $2970.24

After 3 years

A = (2970.24 + 1400) × 1.04 = $4545.05

After 4 years

A = (4545.05 + 1400) × 1.04 = $6182.85

After 5 years

A = (6182.85 + 1400) × 1.04 = $7886.16

Therefore, after 5 years her account balance will be $7886.16