Lance puts $5,000 in a savings account that has a simple interest rate of 2.4%

Question

Lance puts $5,000 in a savings account that has a simple interest rate of 2.4%. How much more would he earn by the end of the first year if he put the $5,000 into a savings account that has an annual interest rate of 2.4% compound quarterly?

Answer 1

Compound interest formula:

A = P(1+r/n)^nt

Amount of money = Principal (1 + decimal rate / number of times compounded per year)^{n*time in years}

You're trying to solve for the amount he'll have gained.

Lance's Principal = $5,000

Rate = 2.4%, so the decimal rate is 0.024

Interest is compounded quarterly, so that's 4 times per year.

You're only looking for one year, so time in years = 1.

Amount = 5,000 * (1+(0.024 / 4))^4*1

Amount = 5,000 * (1+(0.006))⁴

Amount = 5,000 * (1.006)⁴

Amount = 5,000 * (1.024216865296)

Amount = 5,121.08

Lance started with 5,000, so that's a gain of 121.08.