Question

Victor has $40 in a savings account. The interest rate is 5%, compounded annually.

To the nearest cent, how much interest will he earn in 3 years?

Answer 1

$6.31

Explanation:

We are going to use the compound simple interest formula for this problem:

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

P = initial balance

r = interest rate (decimal)

n = number of times compounded annually

t = time

Our first step is to change 5% into its decimal form:

5% ->
`(5)/(100)` -> 0.05

Next, plug in the values:

`A=40(1+(0.05)/(1))^(1(3))`

`A=46.31`

Lastly, subtract 40 (our original value) from 46.31:

`46.31-40=6.31`

Victor earned $6.31 in interest after 3 years.