Question

A company opens a savings account that earns 15% per year, compounded annually. The company deposits $1000 to open the account and deposits and additonal 1,000 on the same date for each of the next two years. What is the account balance at the end of the third year?

Answer 1

• All working forms part of the answer
• Note that Interest is compounded annually.
• Interest each year will be earned on initial investment + deposit that year and also on previous earned interest.
• Solution/Answer provided below

Working	A	B	C=A+B	D=C x 15%	E=C+D
Year	Opening balance $	Deposited $	Total $	Interest earned $	Closing balance $
Year 1	0	1000	1000	150	1150
Year 2	1150	1000	2150	322.5	2472.5
Year 3	2472.5	1000	3472.5	520.875	3993.375

• Hence, the account balance at the end of third year will be $3993.375 or $3993 approx.