math question

[Penguin1]

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problem: a fixed savings account entitlled to a yearly compound interest of 2% was opened with a single deposit of $1000. What will be the account balance 2 years from then?

answer is: 1000 x (1.02)^2

I know the forumla for compound interest is A = P(1+rt)^n

but where am i going wrong??

i put...

p = 1000
r = .02
t = 2
n = 2

 

[spritezhang]

I don't know about the formula, but it looks like you multiply an extra 2 with interest.
The balance of first year is 1000*(1+0.02)
The balance of second year is the balance of the first year*(1+0.02)=1000*(1+0.02)*(1+0.02)=1000*(1+0.02)^2
The formula should be :
deposite*(1+interest(annual))^years

I saw you multiply interest with 2, the interest rate will not change no matter how many years, so each year the total=previous balance*(1+interest)
hope you understand my explaination.

 

[casper22]

The t in the formula stands for the number of years (or period) of compounding... in this case it is one, thus the parentheses part is (1+0.02).

 

[Penguin1]

thanks guys 🙂