Question

Danny deposits $12,500 into a pension fund that invests in stocks. After a successful two years in investing on the stock market, the fund agrees to pay a simple interest rate of 12% per year. What will the balance on the account be after two years? Give your answer in dollars to the nearest dollar. Do not include commas or the dollar sign in your answer. For example if your answer is $1,234.56 enter 1235.

Answer 1

To obtain the final amount after 2 years of simple interest, subtitute the values in the following formula:

$A=P(1+rt)$

where A is the final amount of the investment, P is the principal or the starting amount, r is the rate in decimals, and t is the time in years.

From the problem, we have the following given:

$\begin{gathered} P=12500 \\ r=12\%=0.12 \\ t=2 \end{gathered}$

Substitute the values into the formula.

$\begin{gathered} A=P(1+rt) \\ A=12500\lbrack1+(0.12)(2)\rbrack \end{gathered}$

Simplify the right side of the equation.

$\begin{gathered} A=12500(1+0.24) \\ =12500(1.24) \\ =15500 \end{gathered}$

Therefore, after 2 years, the value of the investment will be $15500.