a bank is advertising that new customers can open a savings account with a 3 3/4 % interest rate compound annually. Robert invests $5000 in an account at this rate. if he makes no additional deposits or withdrawals on his account find the amount of money he will have to the nearest cent after 3 years?

Question

anonymous · Answer

5000(1 + 0.0375)(1 + 0.0375)(1 + 0.0375) = 5000(1 + 0.0375)^3

= 5000(1.0375)^3

The "1" is from preserving the principal which gets added to the interest factor.

anonymous · Answer

All good now, @Viola ?

viola · Answer

Yes, thank you @tcarroll010, but can you explain in simpler words why I have to add "1"?

anonymous · Answer

Good luck to you in all of your studies and thx for the recognition! @Viola 

It's because after the first year, you have the principal:

5000 x 1

and the interest

5000 x 0.0375

so, 5000 x (1 + 0.0375) and repeat that for 2 more years

viola · Answer

I understand now, thank you for all your help! @tcarroll010

anonymous · Answer

If you did only 5000(0.0375) without the "1", it's like throwing away the principal

anonymous · Answer

uw!