Question

9. Use the​ compound-interest formula to find the account balance​ A, where P is​ principal, r is interest​ rate, n is number of compounding periods per​ year, t is​ time, in​ years, and A is account balance.

Answer 1

Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. The account balance after a period of 5 years will be $1.63634×10²⁰.

What is compound interest?

Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. It's the outcome of reinvesting interest rather than paying it out so that interest is received on the principal plus previously collected interest in the next quarter.

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

A = final amount

P = initial principal balance

r = interest rate

n = number of times interest applied per time period

t = number of time periods elapsed

Given the principal amount is $12,385, the rate of interest is 7.5%, and the time period is daily. Therefore, the amount can be written as,

$A = P(1 + \frac{r}{n})^{nt}\\\\A = \ 12,385(1 + \frac{7.5}{365})^{(365 \times 5)}\\\\A = \ 1.63634 \times 10^{20}$

Hence, the account balance after a period of 5 years will be $1.63634×10²⁰.

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