You deposit $500 dollars into an account that pays 3% annual interest, compounded monthly. Find the balance of the account after 2 years. Round your answer to the nearest hundredth.

Answer 1

Hi Kyla! To begin this problem, you want to refer to the following formula:

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

A is your accumulated amount of money, or the answer you are solving for in this problem. P is the principle amount or the amount of money you begin with, in this case your $500. r is the interest rate, convert your interest rate of 3% to decimal form (0.03). n is the number of times interest is compounded per unit time. Since it is compounded monthly, this number would be 12 times per year. Finally, t is time, so you would need to use 2 for the two years the money is in the account.

Plugging in numbers, you should find that the answer is $530.88. To the nearest hundredth, you would be rounding down and that is just $500.