Suppose you deposit $600 in a savings account. The interest rate is 4% per year. Find the principal balance in the account after six years
P = Po(1+r)^n.
Po = $600.
r = 4%/100% = 0.04 = APR expressed as a decimal.
n = 1Comp./yr * 6yrs = 6 Compounding
periods.
Plug the above values in the given Eq
and get:
P = $759.19
To find the principal balance in the account after six years, you need to calculate the compound interest earned over that period.
Compound interest is calculated using the formula:
A = P(1 + r/n)^(nt)
Where:
A = the final account balance
P = the principal amount (initial deposit)
r = the annual interest rate (as a decimal)
n = the number of times the interest is compounded per year
t = the number of years
In this case:
P = $600
r = 4% = 0.04 (as a decimal)
n = 1 (compounded annually)
t = 6 years
Plugging these values into the formula:
A = 600(1 + 0.04/1)^(1 * 6)
A = 600(1 + 0.04)^6
A = 600(1.04)^6
A ≈ 600 * 1.281
A ≈ $768.60
Therefore, the principal balance in the account after six years would be approximately $768.60.