Question

Mr. Vance opened an account with a deposit of $650.

• The bank pays 1.25% interest compounded annually on this account.
• Mr. Vance makes no additional deposits or withdrawals.
How much interest will the account have earned at the end of 12 years?

Answer 1

$104.49

Explanation:

The future value of the account is given by the formula ...

FV = P(1 +r)^t

The interest earned is the difference between that future value and the original amount deposited.

I = FV -P

__

For the given investment, rate, and time, we find the interest to be ...

I = $650((1 +0.0125)^12 -1) = $650(0.160755) = $104.49

Mr. Vance's account will have earned $104.49 in interest at the end of 12 years.