When Lisa and Tom had their first child, they put $7,500 into a savings account that earns 6% compound interest. If Lisa and Tom did not add or remove anything from the savings account, how much interest will they have earned after 4 years? Round to the nearest hundredth of a cent.

Answer 1

The formula for compound interest is: A = P(1 + r/n)^(nt), where:

A = the amount of money accumulated after n years, including interest.
P = the principal amount (the initial amount of money)
r = annual interest rate (decimal)
n = number of times that interest is compounded per year
t = number of years

Given P = $7,500, r = 0.06, n = 1 (compounded annually), and t = 4 years, we can plug the values into the formula:

A = $7,500(1 + 0.06/1)^(1*4)
A = $7,500(1 + 0.06)^4
A = $7,500(1.06)^4
A = $7,500(1.262476)
A = $9,436.07

So after 4 years, Lisa and Tom will have accumulated $9,436.07 in their savings account.

To find out how much interest they earned, we subtract the principal amount from the total accumulated amount:

Interest = $9,436.07 - $7,500
Interest = $1,936.07

Therefore, after 4 years, Lisa and Tom will have earned approximately $1,936.07 in interest.