You deposit $500 in an account that earns 4% simple annual interest. The interest earned each year is added to the principal to create a new principal. Find the total amount in your account after each year for 3 years.
This is not simple interest. This is compound interest. So you will have
500 * 1.04^3 =____
To find the total amount in your account after each year for 3 years, we can use the formula for simple interest:
Total Amount = Principal + (Principal * Interest Rate)
First, let's calculate the interest earned and the total amount for each year:
Year 1:
Principal = $500
Interest Rate = 4% = 0.04
Interest earned in Year 1 = Principal * Interest Rate = $500 * 0.04 = $20
Total Amount after Year 1 = Principal + Interest earned = $500 + $20 = $520
Year 2:
Principal = $520 (New principal from Year 1)
Interest Rate = 4% = 0.04
Interest earned in Year 2 = Principal * Interest Rate = $520 * 0.04 = $20.80
Total Amount after Year 2 = Principal + Interest earned = $520 + $20.80 = $540.80
Year 3:
Principal = $540.80 (New principal from Year 2)
Interest Rate = 4% = 0.04
Interest earned in Year 3 = Principal * Interest Rate = $540.80 * 0.04 = $21.63 (rounded to two decimal places)
Total Amount after Year 3 = Principal + Interest earned = $540.80 + $21.63 = $562.43 (rounded to two decimal places)
Therefore, the total amount in your account after each year for 3 years would be as follows:
Year 1: $520
Year 2: $540.80
Year 3: $562.43