Question

Victor has $40 in a savings account. The interest rate is 5%, compounded annually.
To the nearest cent, how much interest will he earn in 3 years?

Answer 1

Answer:

$6.31

Step-by-step explanation:

We are going to use the compound simple interest formula for this problem:

$A=P(1+\frac{r}{n} )^{nt}$

P = initial balance

r = interest rate (decimal)

n = number of times compounded annually

t = time

Our first step is to change 5% into its decimal form:

5% -> $\frac{5}{100}$ -> 0.05

Next, plug in the values:

$A=40(1+\frac{0.05}{1})^{1(3)}$

$A=46.31$

Lastly, subtract 40 (our original value) from 46.31:

$46.31-40=6.31$

Victor earned $6.31 in interest after 3 years.