Question

A bank account that earns 1% interest each month has a balance of $1,500. Any interest is deposited into the account, and no further deposits or withdrawals are made.Noah thinks that after two months the balance will be $1,530 because 2% of 1,500 is 30.Do you agree with Noah? Explain your reasoning. *

Answer 1

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Answer:

no; additional interest is earned on the first month's interest

Explanation:

Even if we assume that the monthly interest rate is 1% (and that 1% is not the annual rate), the interest from the first month is deposited in the account. That means the interest for the second month is computed on the increased balance, not the original balance.

The balance after 2 months will be ...

$1500·(1.01^2) = $1530.15 . . . . assuming a 12% annual rate of interest

This is $0.15 more than Noah thinks it will be. We do not agree with Noah.