Paula starts a savings account with her tax refund money. Currently, the bank is paying 1.5% interest on savings accounts that compounds monthly. If she places her full refund of $1,200 in this account and forgets about it for two years, her compounded balance will be $2,312.79.

Question

Quizplus · Accepted Answer

Using the formula for compound interest, $A = P(1 + \frac{r}{n})^{nt}$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount ($1,200), $r$ is the annual interest rate (1.5%, or 0.015 as a decimal), $n$ is the number of times that interest is compounded per year (12), and $t$ is the time the money is invested for in years (2), the calculation does not result in $2,312.79.

Paula Starts a Savings Account with Her Tax Refund Money