Suppose you deposit $2,000 in a savings account that pays interest at an annual rate of 4%. If no money is added or withdrawn, determine how much will be in the account after 3 years.
A. $2,249.73
B. $7,876.25
To calculate the amount in the account after 3 years, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = total amount in the account after t years
P = principal amount (initial deposit)
r = annual interest rate (as a decimal)
n = number of times interest is compounded per year
t = number of years
In this case, P = $2,000, r = 4% = 0.04, n = 1 (since interest is compounded annually), and t = 3.
Plugging in these values into the formula, we have:
A = 2000(1 + 0.04/1)^(1*3)
= 2000(1 + 0.04)^3
= 2000(1.04)^3
= 2000 * 1.124864
= $2,249.73
Therefore, the amount that will be in the account after 3 years is $2,249.73.
So the answer is A. $2,249.73.