math 115 #17

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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 -

    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 -

    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 -

    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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