Question

Huan deposited $850 into a college savings account earning 4.8% interest compounded annually. He also deposited $850 into a second account earning 4.8% simple interest. He made no additional deposits. How much interest does the first account earn in 10 years?

Answer 1

$508.41

Explanation:

Compound interest is calculated with the formula:

`CI = P(1 + R)^T - P`

where P = Principal/ Initial amount = $850

R = Rate = 4.8% = 0.048

T = Time elapsed = 10 years

Hence, the compound interest is:

`CI = 850(1 +0.048)^(10) - 850\\\\\\CI = 850(1.048)^(10) - 850\\\\\\CI = (850 * 1.598) - 850\\\\\\CI = 1358.41 - 850\\\\\\`

CI = $508.41

The interest after the first 10 years is $508.41