Allan deposits $1,000 into a bank account that pays 3% interest annual

Solution

• Allan deposits $1,000 into a bank account.
• Interest rate is 3% annually.

• The amount in bank account after 4 years if no deposits or withdrawal is made in this period.

• 3% interest will be levied each year.

o So, this is a case of successive interest.
o Hence, we can use the A-B formula.

• At the end of 1st year, net interest rate = 3%
• At the end of 2nd year, net interest rate = 3 + 3 +\(\frac{9}{100}\) = 6+0.09 = 6.09
• At the end of 3rd year, net interest rate = 3 + 6.09 +\(\frac{3 × 6.09}{100}\) = 9.09 + 0.1827 = 9.2727
• At the end of 4th year, net interest rate = 3 + 9.2727 +\(\frac{3 × 9.2727}{100}\) = 12.2727+0.28 = Approx 12.56

• Thus, amount after 4 years = 1000 +12.56% of 1000 = 1000 + 125.6 = 1125.6