Questions: To be able to go on a trip to South America, Melissa decides to save for 4 years. She opens a savings account with 400. The account pays simple interest at an annual rate of 2%. She doesn't make any more deposits. Answer the following questions. If necessary, refer to the list of financial formulas. (a) How much total interest will Melissa earn? (b) What will the total amount in the account be (including interest)?

Solution Steps

To calculate the total interest earned using simple interest, we use the formula:

\[ I = P \times r \times t \]

where:

• \( I \) is the interest,
• \( P \) is the principal amount (\$400),
• \( r \) is the annual interest rate (2\% or 0.02),
• \( t \) is the time in years (4 years).

Substituting the given values:

\[ I = 400 \times 0.02 \times 4 \]

\[ I = 32 \]

Melissa will earn a total interest of \$32.

The total amount in the account, including interest, is given by:

\[ A = P + I \]

Substituting the known values:

\[ A = 400 + 32 \]

\[ A = 432 \]

The total amount in the account will be \$432.

Final Answer