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23 May, 19:02

Edwin has $800 in a savings account that earns 8% interest, compounded annually. To the nearest cent, how interest will he earn in 1 year.

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  1. 23 May, 19:11
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    Formula for Compound Interest: A = P (1 + r/n) ^n*t

    A = final amount (aka your answer)

    P = initial amount (what you begin with)

    r = interest rate (as a decimal)

    n = number of times per year that the money is compounded

    ex. annually: n = 1; semi-annually: n = 2; quarterly: n = 4

    t = time in years

    Explanation:

    1. A = 800 (1 +.08/1) ^1

    2. Because the interest rate is compounded only once a year, the problem becomes very simple and you can get rid of the exponent 1, as this will not affect the answer because any value to the power of 1 is itself. Additionally, you do not have to divide 0.08 by 1, because anything divided by 1 is itself as well.

    3. A = 800 (1.08), multiply the values using a calculator for accurate answers

    4. A = $864

    Answer: Edwin will earn exactly $64 in one year with an 8% interest rate, giving him a total of $864
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