A savings account earns 6% simple interest per year. The principal is $800. What is the balance after 18 months?

Question

A savings account earns 6% simple interest per year. The principal is $800. What is the balance after 18 months? I can't solve it

Answer 1

What you are actually looking at is compound

interest at 6% compounded annually.

 

A =  p(1+r/n)^nt

A = future amount

p = principal = 800

r = interest rate = 6% = 0.06

n = number two mes compounded per year = 1

t = time in years ... 18 mos. = 1.5

 

A = 800(1+0.06/1)^1(1.5)

A = 800(1.06)^1.5

A = $873.07

Answer 2

This is not a compound interest question so that we earn interest only based on the original principal. The interest rate is 6% per year; then we know that the interest rate per month is 0.5% (6%/12months). The question is asking the balance after 18 months; thus we need to add the principal and all interest income together to get the total balance amount: $800+0.5%*$800*18=$872.