How much interest will Tom earn if he invests $15000 in a savings account that is compounded annually at a rate of 4.5% for 6 years

Question

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Answer 1

Hi Michael,

 

The formula for the future amount of money invested with compound interest is 

 

                          A(t) = P (1 + r/m)^mt  where P is the principle, r is the rate of interest, m is the number of times interest is compounded in a year and t is the number of years. Substituting the given values in this formula results in 

 

                         A(6) = 15,000( 1+ .o45/1)¹⁽⁶⁾ = 19,533.90  Subtracting the amount of the original investment from the amount in six years will tell us the amount of interest that will be earned.

 

                                               19,533.90 - 15,000.00 = 4,533.90

Answer 2

This is actually a simple compounding interest problem. The equation you're going to use is 

 

 

B = C (1 + r/i)^yi

 

 where B is the balance, C is the initial investment, r is the interest rate, i is the number of times its compounded per year, and y is the number of years its compounded.

 

In this case, B is the unknown variable, C is $15,000, r is 4.5%, i is 1, and y is 6;

 

B = 15,000 (1 + 0.045)⁶ = $19,533.90