On your birthday, you deposit $540.00 in an account that pays 6% interest, compounded annually. How much is in the account 3 years later?

1 Answer
May 17, 2016

$540 is the amount of money deposited in the account
And the balance of the account which is $540 has a 6% increase once a year for 3 years.
6% interest means 6% of 540 is added once a year.
We have to convert the interest into a decimal, divide whatever the percentage is by 100.

6/100=0.06

Now we are working with the numbers we need, use multiplication to find 6% of 540.

540xx0.06=32.40

In just one year, the amount earned in interest is $32.40 so in 3 years the amount earned will be

32.40xx3=$97.20

The balance of the account after 3 years will be

540+97.20=$637.20

Algebraically, the question can be answered this way
fb=ib(i)(t)+ib
Let fb = final balance = 637.20
Let ib = initial balance = 540
Let i = interest percentage divided by 100 6/10=0.06
Let t = the amount of time the initial balance stays in the account = 3

637.20=540(0.06)(3)+540

You can use any letter to represent the numbers but make sure the final equation leads to the right solution.