Question

A savings account pays 2% interest compounded annually. If $1200 is deposited initially and again at the first of each year. How much money will be in the account after three years after the initial deposit?

A. $1248.48
B. $2472.48
C. $3672.48
D. $3745.93

Answer 1

Answer: D, 3745.93$

Explanation:

Given,

$ 1200 is deposited first year that earns 2 % interest compounded annually,

The amount of first deposit after 3 years would be,

Now, $ 1200 is deposited second year that earns 2 % interest compounded annually,

The amount of second deposit after 2 years would be,

Also, Again $ 1200 is deposited third year that also earns 2 % interest compounded annually,

The amount of third deposit after 1 year would be,

Hence, the total money in the account after three years,

Answer 2

The correct answer is D. $3,745.93

Explanation:

1. Let's review the information given to us to answer this problem correctly:

Recurring annuity = US$ 1,200

Interest rate = 2% = 0.2 compounded annually

Time = 3 years after the initial deposit

2. Using the compound interest formula, we have:

Future value = Annuity * ( 1.02) ³ + Annuity * (1.02) ² + Annuity * (1.02)

Future value = 1,200 * ( 1.02) ³ + 1,200 * (1.02) ² + 1,200 * (1.02)

Future value = 1,273.45 + 1,248.48 + 1,224

Future value = US$ 3,745.93

The correct answer is D. $3,745.93