A savings account earns 5% annual interest. The principal is $1200. What is the balance in the account after 4 years?

Question

How do I solve this???????????????????????????????????

Answer 1

It does not say simple interest. That usually means it is compound interest. You take the interest rate and convert it to a decimal, then add one whole. In this case, the result is 1.05. Now begin with the principal of $1200.00 and multiply it by 1.05 raised to the power equal to the number of periods (4, in this case).

 

so, $1200.00 * (1.05)^4 = $1458.6075 which rounds to $1458.61

 

If the problem stated it was simple interest, then just multiply 5% by 4 to get 20%. Change this to a decimal to obtain 0.20 and multiply this by $1200.00 to get $240. Finally, add this $240 to the original $1200 to get $1440.

 

Please note that the compound interest earned an additional $18.61 over the 4-year period compared to the simple interest. That is why it is better fior the consumer to receive the compiund interest rate rather than the simple interest rate. 

Answer 2

ANSWER: The answer is $1458.61. The explanation follows.

 

To add 5% to a number, you simply multiply the number by 1.05. So after the first year, you have (1200*1.05). After the second year, you have (1200*1.05)*1.05 OR 1200*(1.05^2). After the third year, you have {(1200*1.05)*1.05}*1.05 OR 1200*(1.05^3). Keep carrying out this pattern and after the fourth year, you will have 1200*(1.05^4) which equals 1458.61

 

If this answer was helpful, please vote it up. If not, please let me know how I may assist you further.

Answer 3

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

 

A= future amount
P = principal
r = annual interest rate.
n = number of compounding periods per year.
t = number of years.

 

For your problem,

 

P= $1200

r = 5% = .05

n = 1

t = 4

 

A = 1200 * (1+.05)^4

A = 1200 * 1.2155

A = $1458.61

 

 

After 4 years, the balance will be $1458.61.