Compound Interest Math Example 4

Follow the full solution, then compare it with the other examples linked below.

Example 4

easy
You deposit \1{,}200inasavingsaccountat in a savings account at 4\%$ compounded annually. What is the balance after 5 years?

Solution

  1. 1
    Use A=P(1+r)t=1200(1.04)5A = P(1 + r)^t = 1200(1.04)^5.
  2. 2
    (1.04)5โ‰ˆ1.21665(1.04)^5 \approx 1.21665, so Aโ‰ˆ1200ร—1.21665โ‰ˆ1460.00A \approx 1200 \times 1.21665 \approx 1460.00.

Answer

Aโ‰ˆ$1,460.00A \approx \$1{,}460.00
When interest is compounded annually (n=1n = 1), the formula simplifies to A=P(1+r)tA = P(1 + r)^t.

About Compound Interest

Interest calculated on both the initial principal and the accumulated interest from previous periods. The formula A=P(1+rn)ntA = P\left(1 + \frac{r}{n}\right)^{nt} gives the amount after tt years, and A=PertA = Pe^{rt} gives the continuously compounded amount.

Learn more about Compound Interest โ†’

More Compound Interest Examples

Example 1 easy

You invest [formula]5{,}000[formula]6%$ annual interest compounded quarterly. Find the amount after

Example 2 medium

How long does it take for an investment to double at [formula] annual interest compounded monthly?

Example 3 medium

Find the amount when [formula]2{,}000[formula]5%$ compounded continuously for 4 years.

Example 5 hard

What annual interest rate, compounded monthly, is needed to grow [formula]3{,}000[formula][formula]

โ† All Compound Interest Examples Compound Interest Concept