Question

When Lisa and Tom has their first child, they put $7,500 into a savings account that earns 6% compound interest. If Lisa and Tom did not add or remove anything from the savings account, how much interest will they have earned after 4 years?

Answer 1

Explanation:

We would apply the formula for determining compound interest which is expressed as

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

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = $7500

r = 6% = 6/100 = 0.06

Assuming the interest was compounded annually, then

n = 1 because it was compounded once in a year.

t = 4 years

Therefore,

A = 7500(1 + 0.06/1)^1 × 4

A = 7500(1.06)^4

A = $9468.6

The interest that they would have earned after 4 years is

9468.6 - 7500 = $1968.6