Question

Compound Interest
You invest $750 at 6% per annum compounded annually.

Determine how much the interest is earned in the first year. Answer :$45

Determine how much more interest is earned in the second year? Please answer and explain.

Answer 1

ok, the interest in the 1st year is 6% of $750

so

I = 750 * 0.06


for the 2nd year add the interest and principal

so

I = ( Interest + Principal)* 0.06

hope this makes sense

Answer 2

Not making much sense

Answer 3

You earn $45 in interest in the first year. So you add that to the balance to get 750+45 = 795

This is your new balance going into year 2

You now use the formula

I = Prt

where P = 795, r = 0.06 and t = 1

to find the interest you earn for year #2