Old Time Savings Bank pays 5% annual interest rate on its savings accounts. If you deposit $2100 in the bank and leave it there. Assume bank pays annual compounded interest. How much interest will you earn in the first year? How much interest will you earn in the thrid year? How much interest will you earn in the 8th year? [Please round your answer to the nearest whole number]
Multiple Choice
$105;$122;$155
$105;$122;$148
$105;$116;$148
$105;$116;$155
Ans $105;$116;$148
| FV = | Future Value |
| PV = | Present Value |
| r = | rate of interest |
| n= | no of period |
| FV of Year 1 | |
| FV = | PV (1 + r )^n |
| FV = | 2100*(1+ 5%)^1 |
| FV = | 2205.00 |
| INTEREST IN FIRST YEAR = | FV- PV |
| 2205 - 2100 | |
| 105 | |
| FV of Year 2 | |
| FV2 = | PV (1 + r )^n |
| FV2 = | 2100*(1+ 5%)^2 |
| FV2 = | 2315.25 |
| FV of Year 3 | |
| FV3 = | PV (1 + r )^n |
| FV3 = | 2100*(1+ 5%)^3 |
| FV3 = | 2431.01 |
| INTEREST IN THIRD YEAR = | FV3 - FV2 |
| 2431.01 - 2315.25 | |
| 116 | |
| FV of Year 7 | |
| FV7 = | PV (1 + r )^n |
| FV7 = | 2100*(1+ 5%)^7 |
| FV7 = | 2954.91 |
| FV of Year 8 | |
| FV8 = | PV (1 + r )^n |
| FV8 = | 2100*(1+ 5%)^8 |
| FV8 = | 3102.66 |
| INTEREST IN EIGHTH YEAR = | FV8 - FV7 |
| 3102.66 - 2954.91 | |
| 148 |
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