If Connie deposits $400 into a savings account with a 1% annual interest rate and doesn't withdraw any of the money for 4 years, what will her balance be at the end of 4 years?

\(\$416.24\)

Explanation

The important thing to remember when calculating this answer is that the balance that Connie will earn interest on is increasing each year with each new annual interest payment.
Here's a yearly breakdown remembering that 1% interest is (1/100) = 0.01 as a decimal:

\(\text { Year } 1: 400.000 \times 0.01=4.000 \text { interest and } 404.000 \text { USD total }\)

\(\text { Year } 2: 404.000 \times 0.01=4.040 \text { interest and } 408.040 \text { USD total }\)

\(\text { Year } 3: 408.040 \times 0.01=4.080 \text { interest and } 412.120 \text { USD total }\)

\(\text { Year } 4: 412.120 \times 0.01=4.121 \text { interest and } 416.242 \text { USD total }\)

Which, when rounded to two decimal places, is 416.24 USD
NOTE
Here's a shortcut formula for figuring out the accumulation due to annual interest:
\( A = P{(1 + i)^t}\)where A is the amount accumulated, P is the principal, i is the interest rate, and t is the number of years.
Plugging in our variables we get:
\( A = 400{(1 + 0.01)^4}\)
\(A = 400{(1.01)^4}\)
\(A = 400 \times 1.04\)
A = 416.24
Feel free to use this formula (or look up "compound interest formula" to get the full version). We chose to show you how to calculate the result without using the shortcut so you'll know how the process works and be better prepared for whatever interest rate questions the test may throw at you.

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