Question

Suppose that $7000 is placed in an account that pays 19% interest compounded each year.Assume that no withdrawals are made from the account.Follow the instructions below. Do not do any rounding.Find the amount in the account at the end of 1 year.Find the amount in the account at the end of 2 years.

Answer 1

Answer

• At the end of the first year, we will have $8,330.

,

• At the end of the second year, we will have $9912.7.

Explanation

Given

• $7000 is placed

,

• Pays 19% interest compounded each year.

Procedure

If we place $7000, we could consider that this is our 100% (1). Thus, at the end of the first year, we will have 119% (1.19). Making a relation that represents the latter we can find the total amount at the end of 1 year:

$\frac{x}{1.19}=\frac{7000}{1}$$x=7000\cdot1.19=8330$

Now, considering that $8330 is our 100% (1) and the amount in the account at the end of 2 years is 119% (1.19), then, following the same procedure:

$\frac{x}{1.19}=\frac{8330}{1}$$x=8330\cdot1.19=9912.7$