A savings account earns 1 percent interest per month on the sum of the initial amount deposited plus any accumulated interest. If a savings account is opened with an initial deposit of $1,000 and no other deposits or withdrawals are made, what will be the amount in this account at the end of 6 months?
A)$1,060.00
B)$1,061.52
C)$1,072.14
D)$1,600.00
E)$6,000.00

Question

Quizplus · Accepted Answer

The account earns 1% interest per month on the total amount in the account, including any previously accumulated interest. This is a case of compound interest. The formula for compound interest is A = P(1 + r)^n, where A is the amount of money accumulated after n periods, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), and n is the number of times the interest is compounded per unit t. For monthly compounding at 1% monthly interest, r = 0.01 and n = 6 for 6 months. Thus, A = 1000(1 + 0.01)^6 = 1000(1.01)^6 ≈ $1,061.52.

A Savings Account Earns 1 Percent Interest Per Month on the Sum