Thinking Mathematically (6th Edition)

Published by Pearson
ISBN 10: 0321867327
ISBN 13: 978-0-32186-732-2

Chapter 8 - Personal Finance - 8.4 Compound Interest - Exercise Set 8.4: 8

Answer

(a) After four years, there will be \$3,240.05 in the account. (b) The interest earned is \$740.05

Work Step by Step

(a) We can use this formula: $A = P~(1+\frac{r}{n})^{nt}$ $A$ is the final amount in the account $P$ is the principal (the amount of money invested) $r$ is the interest rate $n$ is the number of times per year the interest is compounded $t$ is the number of years $A = P~(1+\frac{r}{n})^{nt}$ $A = (\$2500)~(1+\frac{0.065}{12})^{(12)(4)}$ $A = \$3240.05$ After four years, there will be \$3240.05 in the account. (b) We can find the interest earned. $A - P = \$3240.05 - \$2500 = \$740.05$ The interest earned is \$740.05
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