Chapter 5-1 Old Time Savings Bank pays 3% interest on its savings accounts. If y

Question

Chapter 5-1

Old Time Savings Bank pays 3% interest on its savings accounts. If you deposit $2,700 in the bank and leave it there (Do not round intermediate calculations. Round your answers to 2 decimal places.):

How much interest will you earn in the first year?

How much interest will you earn in the second year?

How much interest will you earn in the tenth year?

Old Time Savings Bank pays 3% interest on its savings accounts. If you deposit $2,700 in the bank and leave it there (Do not round intermediate calculations. Round your answers to 2 decimal places.):

Explanation / Answer

Answer a Compound Interest formula FV = P * (1 + r)^t FV = the future value of the investment Including interest = ? P = the principal investment amount = $2700 r = the annual interest rate = 3% i.e. 0.03 t = the number of years the money is invested = 1 FV = 2700 * (1 + 0.03)^1 = 2781 Interest for first year = $2781 - $2700 = $81 Answer b FV = 2700 * (1 + 0.03)^2 = $2864 Total Interest till second year = $2864 - $2700 = $164 Interest for second year = $164 - $81 = $83 Answer c Calculation of investment value in 9 th year FV = 2700 * (1 + 0.03)^9 = $3523 Calculation of investment value in 10 th year FV = 2700 * (1 + 0.03)^10 = $3629 Interest for tenth year = $3629 - $3523 = $106

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