Question

You worked as a lifeguard this summer and earned an extra $3,000. You decided to deposit that amount into your savings account. This savings account will earn 2.0% interest annually and no other deposits will be made. What is the future value after 5 years?

Answer 1

The correct answer is $3300 for simple interest and $3312.24 for compound interest.

Explanation:

Income as working as a lifeguard = $3000

We deposit the money in a bank which offers 2% interest annually for a period of 5 years.

Case 1 : Calculating simple interest for the given situation.

Amount after 5 years = 3000 + 3000 × 2 × 5 ×
`(1)/(100)` = $ ( 3000 + 300) = $3300.

Case 2 : Calculating compound interest for the given situation.

Amount after 5 years = 3000 ×
`(1 + (2)/(100) ) ^(5)` = $ 3312.24.

Thus the amount after 5 years amount simply is $3000 and compoundly is $3312.24