In the real world, simple interest is normally used for a single period of less than a year, such as 30 or 60 days, because it is calculated on the original amount only. If your interest accumulated annually, you'd get a very different sum.
The formula for compound interest is: A=p(1+r) where A represents the final amount, t represents the time in years, p is teh principal (starting amount), and r is the interest rate expressed as a decimal. Keisha has $90 in a savings account. The interest rate is 10%, compounded annually. To the nearest cent, how much interest will she earn in 2 years?
10% = 0.1Calculate the balance.
Now use this to find the interest, which is the balance minus the principal. $108.90 – $90 = $18.90The interest will be $18.90. |