suppose linda places $7000 in an account that pays 8% interest compounded each year. assume that no…
suppose linda places $7000 in an account that pays 8% interest compounded each year. assume that no withdrawals are made from the account. follow the instructions below. do not do any rounding. (a) find the amount in the account at the end of 1 year. $ (b) find the amount in the account at the end of 2 years. $
Answer
Answer:
(a) $7560 (b) $8164.8
Explanation:
Step1: Recall compound - interest formula for 1 - year
The formula for compound interest after 1 year when compounded annually is $A = P(1 + r)$, where $P$ is the principal amount and $r$ is the annual interest rate. Here, $P=$7000$ and $r = 0.08$. $A_1=7000\times(1 + 0.08)$
Step2: Calculate amount after 1 year
$A_1=7000\times1.08 = 7560$
Step3: Recall compound - interest formula for 2 - years
The formula for compound interest after $n$ years when compounded annually is $A=P(1 + r)^n$. Here, $P = 7000$, $r=0.08$ and $n = 2$. $A_2=7000\times(1 + 0.08)^2$
Step4: Calculate amount after 2 years
$A_2=7000\times1.08^2=7000\times1.1664 = 8164.8$