You deposit $1500 in an account that pays 5% interest yearly. How much money do you have after 6 years?

Question

 I do not understand how to do this problem, it is very hard. I don't know how to even start it

Answer 1

The question doesn't say whether the interest is compounded or not, or how often its compounded if it is.  I'll show you how to do the problem if it is not compounded (this is called simple interest) or if its compounded once a year (this is called yearly compounding).  You will see that the answer will be different in each case.  

 

The formula for simple interest is I = P*R*T where I = interest, P = Principal (original amount), R is the rate as a decimal, and T is time in years.  So I = 1500*(.05)*6 = 1500*(0.30) = $450.  The total amount you have after 6 years is the amount you started with ($1500) plus the interest ($450) which is $1950.  

 

The formula for yearly compounding is  A = P(1 + r)^t   where  

 

A = Accumulated or final amount  

P = Principal ($1500) 

r = interest rate as a decimal (0.05)

t = time (6 years)  

 

A = 1500*(1 + 0.05)⁶ = 1500*(1.05)⁶ = $2010.14