You deposit $100 in your savings account. The account has an interest rate of 2.5%. After 10 years how much will you have in your account?

Question

Struggling with word problem

Answer 1

For simple interest the equation is I = P*r*t where:

 

I = interest accrued over the t

P = principal or initial investment amount

r = interest rate in decimal form

t = period or time

 

This just gives you interest. Then add the interest to the principal A = P*(1+rt)

 

For compounding interest the equation is A = P(1+r/n)^nt

 

n = number of periods per period.

 

Hope this helps Payton.

 

 

Answer 2

Payton,

 

A good equation to "keep on hand" is the simple interest equation.

 

A=P(1+rt)

 

where, P = principle amount (are the amount deposited), r = interest rate and t = time in years. A = the annuity are the resulting amount after x number of years. 

 

Plugging the information in the right side of the equation you get: $100[1+(0.025)(10)]=A 

 

Doing the math you should get $125. Just an additional $25 in ten years time. 

 

Jacoby