Question

A new bank customer with $4,000 wants to open a money market account. The bank is offering a simple interest rate of 1.9%. a. How much interest will the customer earn in 10 years? b. What will the account balance be after 10 years?

Answer 1

Part A.

The simple interest formula is given by

$I=\text{Prt}$

where I is the interest earned after t years, P is the money invested, r is the rate and t is the time. In our case, P=$4000, r=0.019 and t=10 years. Then, by substituting these values into the last formula, we have

$\begin{gathered} I=4000\times0.019\times10 \\ I=\text{ \ 760} \end{gathered}$

How much interest will the customer earn in 10 years? $760

Part B

The formula for the ending balance A on an account with simple interest is

$A=P+I$

then, in our case, we have

$\begin{gathered} A=4000+760 \\ A=4760 \end{gathered}$

What will the account balance be after 10 years?​ $4760