3 Darwin open a If he s up a savings account that has an ann

3. Darwin open (a) If he s up a savings account that has an annual interest rate of 0.23%, compounded monthly. puts $800 in the account and leaves it untouched for 18 months, who much will be in the account at the end of the 18 months? (b) How much interest will Darwin earn on his investment during the 18 months? o Ater the 1g moaputs $1000 aditional in the account. What will the balance be after the deposit is made? (d) For the next 2 years the money continues to earn an annual interest rate of 0.23% compounded monthly. What will the value of the account be at the end of the 2 years?

Solution

Answer 3)

a) The question is based on concept of compounding interest rate ,

A= P ( 1+ r/n) ^ t , where p = intial investment , r = rate of annual compounding , n = frquency of compounding per year , t = time of investment

here, p = $ 800 , r= 0.23% (0.0023) , n = monthly compounding ( 12 per years) , t = 18

A= 800 * ( 1 + 0.0023/12) ^ 18 =$802.7645 = $ 802.76

b) interest earned = A-P

$ 802.76 - $ 800 = $2.76

C) balance after deposit of additional money ,

Balance = $ 802.76 + $ 1000 = $1802.76

D)

amount after next 2 years will be , as per the same concept used in solution of above question a,

A = 1802.76 * ( 1+ 0.0023/12)^ 24 = $ 1811.071.