Question

On your 16th birthday, you open a savings account with $1000. The account pays 4% compound interest. How much will be in the account on your 50th birthday (the beginning of the 35th year in the account)? i don't really understand compound interest that well

Answer 1

Approximately $4946

Explanation:

The compound interest can be determined by:

Compound interest = P
`(1 + r)^(T)`

Where: P is the principal, r is the rate and T is the number of years.

Given that: P = $1000, r = 4% and T = 34 years, then;

Compound interest = 1000
`(1 + (4)/(100)) ^(34)`

= 1000
`(1 + 0.04)^(34)`

= 1000
`(1.04)^(34)`

= 1000 x 3.79431

= 3794.31

Compound interest ≅ $3794

The amount that would be in the account = Principal + interest

= $1000 + $3794

≅ $4794