Question

Please help! I'm so lost :(

For the investment with interest compounded annually, find the final balance and the total interest earned.

$500 for 2 years at 8%

A.
final balance: $540
interest earned: $40

B.
final balance: $580
interest earned: $80

C.
final balance: $583.20
interest earned: $83.20

D.
final balance: $620
interest earned: $120

Answer 1

@razor99

Answer 2

Can some one please explain to me what to do??

Answer 3

Do u know the formula to find compound interest

Answer 4

No

Answer 5

That's an issue. We might be able to work around it now, since it's only two years, but you have to learn the formula afterwards.
Ready?

Answer 6

Yes

Answer 7

All right. What's 8% of 500?

Answer 8

Um...40?

Answer 9

That's right.
So after the first year, the 500 earned 40, making for a total of 540, yes?

Answer 10

Yes

Answer 11

So, 540 will earn interest AGAIN after the second year.

So what's 8% of 540?

Answer 12

43

Answer 13

Not quite.

Please be precise.

Answer 14

Whoops, sorry. 43.2 :)

Answer 15

Good.
So after the second year, the 540 earns an interest of 43.2, making for a total of...?

Answer 16

583.2?

Answer 17

Correct. You have your answer now?

Answer 18

Yes! C right?

Answer 19

You got it :)

Answer 20

Thank you sooo much!! :D

Answer 21

This method is very tedious, and will definitely not be feasible if we consider any more than two or three years, so here's the general formula:
\[\Large Final \ Balance = \color{blue}P (1+\color{red}i)^\color{green}n\]
Here, P is the principal, or how much you start with
i is the interest rate per year
and n is the number of years that have passed.

Learn this to heart, ok?
You'll find that this would work with this question.