Question

Laura invests $3600 in a savings account for 2 years. The account pays 3.52% compound interest per annum. Laura has to pay 40% tax on the interest earned each year. The tax is taken from the account at the end of each year. How much is in the account at the end of 2 years?

Answer 1

Answer:

$3753.64

Step-by-step explanation:

Initial amount = $3600

Interest rate = 3.52%

n = 1 (once in a year)

Time = 1 years

No of years = 2

Compound interest

 A =$P(1 + \frac{r}{n} )^n*t$

• A = 3600(1 + 0.352/1) ^1*1

   = $3726.72

• Interest earned = 3726.72 - 3600

                          =  $126.72

• Tax = 40% of the interest earned

       = $\frac{40}{100}*126.72$   = $50.69 (This amount is deducted from interest )

• Net interest earned after 1 year = 126.72 - 50.69

                                                     = $76

• Balance after 1 year = $3600 + $76

                                  = $3676

Similarly for the 2nd year

Compound interest

    A =$P(1 + \frac{r}{n} )^n*t$

•     A = 3676( 1+0.0352/1)^1*1

         = 3676(1.0352)

           =  $3805.4

• Interest earned = 3805.4 - 3676

                           = $129.4

• Tax = $\frac{40}{100}*129.4$

       = $51.76

• Net interest earned =129.4 - 51.76

                                 = $77.64

• Net balance after 2nd year  = 3676+ 77.64

                                               = $3753.64