Posted by Debbie on Thursday, December 11, 2008 at 8:48pm.
If $5,600 is deposited into an account paying 5% interest compounded annually (at the end of each year), how much money is in the account after 3 years?
This is what I get"
5600 X .05 =280 X 3 =840

math 115 #17  Ms. Sue, Thursday, December 11, 2008 at 8:54pm
But what happened to your original $5,600????
Also  since the interest is compounded annually, at the end of the first year you'll have $5,600 + 280 = $5,880
At the end of the second year:
5,880 * 0.05 = 294
294 + 5,880 = $6,174
What will you have at the end of the third year?

math 115 #17  Christiaan, Thursday, December 11, 2008 at 8:56pm
I don't understand the reasoning behind your answer.
Anyway, the way to do this is the folliwing.
For every year your money is on the bank, the bank multiplies your balance by 1.05. This means that after 3 years, you get the following:
Money after 3 years = inititial deposit*1.05*1.05*1.05 = 5600 * 1.05^3 = 6482.7

math 115 #17  Reiny, Thursday, December 11, 2008 at 8:57pm
you have calculated the simple interest earned by the account after 3 years.
So your account would have 5600 + 840 in it or $6440
in reality you would probably earn compound interest and the amount would be
5600(1.05)^3
= $6482.70
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