Suppose you receive for graduation a gift of $1200 from your favorite relative. You are required to invest at least $800 of the gift in a no-withdrawal savings program for at least two years.

Question

Plan A: First Savings Bank (FSB) pays 6% interest, compounded annually on savings accounts. Employee's Credit Union (ECU) has options that allow you to choose your interest rate and how often your interest is compounded.

Determine how much you would have at the end of 2 years if you decided to invest $1,000 at FSB.

Answer 1

Hi Chloe M.

You can check the formula for Compounded Interest in your text or online, then just plug in your values from above

Generally its

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

A is the amount you will have at the end of your investment

P = the starting Principal

r = rate written as a decimal

n = the number of times interest is compounded per unit t

t = time in years

For a $1000 investment at FSB with a rate of 6%

P = 1000

r = 6%

n = 1

t = 2 years

A = 1000(1 +.06/1)⁽²⁾⁽¹⁾

A = 1000(1.06)²

If this is consistent with the information in your text then just do the calculation. If you have another calculation for you class then use that. Do give it a try and I do hope this helps.