ECONOMICS (CBSE/UGC NET)

ECONOMICS

COMPOUND INTEREST

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Michelle has a balance of $950 in a savings account that pays 3% interest compounded annually. If Michelle makes no deposits or withdrawals how much money will be in her savings account after 2 years?

A	$954.81
B	$1, 004.00
C	$1, 007.00
D	$1, 007.86

Explanation:

Detailed explanation-1: -How Compound Interest Works. Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.

Detailed explanation-2: -A compound interest account pays interest on the account’s principal balance and any interest it had previously accrued. Because higher principals net higher returns, and higher returns then add to those principals, growth from compounding becomes progressively stronger with time.

Detailed explanation-3: -Short-Term Financial Goals: Compound interest builds rapidly over time, making it harder to get out of debt. Paying off debt can make it easier to start saving and working towards your other financial goals.

Detailed explanation-4: -Annual percentage yield (APY) tells you the amount you will earn, taking into account the interest rate and how often accrued interest is compounded.

There is 1 question to complete.