Question

Karen deposited $50 in a savings account earning 5% interest, compounded annually.To the nearest cent, how much will she have in 3 years?

Answer 1

To determine how much will she have we need to use the compound interest formula:

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

where A is the final amount, P is the principal, r is the interes rate in decimal form, n is the number of times the interest is compounded per unit time and t is the time.

In this case we have tha P=$50, r=0.05, n=1 (since the interest is compound annually) and t=3, plugging this values in the formula we have:

$\begin{gathered} A=50(1+\frac{0.05}{1})^{3\cdot1} \\ A=57.88 \end{gathered}$

Therefore, after 3 years Karen will have $57.88