an account pays 8% per year interest. in year 1, the amount in the account is $850. how much is in the account in year 6?

Question

A. $1248.93

B. $1190.00

C. $1130.00

D. $ 1209.85

Answer 1

A(6) = A(1)·1.08⁵ = 850·1.08⁵ = $1248.93;

Answer is A.

Answer 2

After 1 year the amount is $850 with 8% interest. The amount in 1 year is x + 0.08 x where x is the original amount and 0.08 the interest. Using this principle, the amount calculated includes the interest of the previous year. therefore:

At year 1 the amount is $850

At year 2 the amount would be $850 + 0.08($850) = $918

At year 3 the amount would be $918 + 0.08($918)= $991.44

At year 4 the amount would be $991.44+0.08($991.44)= $1070.75

At year 5 the amount would be $1070.75+0.08($1070.75)=$1156.34

At year 6 the amount would be $1156.34+0.08($1156.34)=$1248.91

Answer is A