Question

The formula for calculating the amount of money returned for an initial deposit into a
bank account or CD (certificate of deposit) is given by
nt
n
r
P A „Ê„Ë
„É
„º„»
„¹
ƒ­ 1ƒy
A is the amount of the return.
P is the principal amount initially deposited.
r is the annual interest rate (expressed as a decimal).
n is the number of compound periods in one year.
t is the number of years.
Carry all calculations to six decimal places on each intermediate step, then round the
final answer to the nearest whole cent.
Suppose you deposit $2,000 for 5 years at a rate of 8%.
a) Calculate the return (A) if the bank compounds annually (n = 1). Round your
answer to the nearest whole cent.

Answer 1

Using more conventional online notation,

A = P(1+r/n)^nt

A = 2000(1.08)^5 = 2000*1.469328 = 2938.656 or 2938.66