Question

an investor places $2000 in a bank account. the bank promises an interest rate of 8% in year 1, 95 in year 2, and 10% in year 3. What is the account balance at the end of 3 years?

Answer 1

There can be 2 situation.

1) If the bank pay compound Interest, compunded annually.

In this case the bank will pay interest on the earned interest also.

In this case the balance at year 3 = $2,000 * (1.08) * (1.095) * (1.1) = $2,601.72

2) If the bank will pay simple interest then account balance at year 3 as follows:-

Interest for year 1 = $2000 * 8% = $160

Interest for year 2 = $2000 * 9.5% = $ 190

Interest for year 3 = $2000 * 10% = $200

Account balance at year 3 = Principal + interest for 3 years

Account balance at year 3 = $2000 + $160 + $190 + $200

Account balance at year 3 = $2550

Please hit the thumps up if you understand the concept. and feel free to comment any time. Thank you