Question

Compound interest 5. A bank pays interest of 12%. Mr Olsen puts £5000 in the bank. How much does he have after(i) One year(ii) Three years?

Answer 1

Answer:

$\begin{gathered} i)\text{ \textsterling5,600} \\ ii)\text{ \textsterling7,024.64} \end{gathered}$

Explanation:

Here, we want to get the value of the deposit after the stipulated time

Mathematically:

$A\text{ = P\lparen1 + }\frac{r}{n})\placeholder{⬚}^{nt}$

where:

A is the amount after the given time

P is the deposited amount which is 5,000 pounds

r is the interest rate which is 12% = 12/100 = 0.12

n is the number of times interest is compounded yearly which is 1

t is the number of years

i) One year

We have that as:

$\begin{gathered} A\text{ = 5,000\lparen1 + }\frac{0.12}{1})\placeholder{⬚}^{1\times1} \\ \\ A\text{ = \textsterling5,600} \end{gathered}$

ii) Three years

$\begin{gathered} A\text{ = 5000\lparen1 + }\frac{0.12}{1})\placeholder{⬚}^{3\times1} \\ \\ A\text{ = \textsterling7,024.64} \end{gathered}$