Ella invests £7000 for 2 years in an account paying compound interest - Edexcel - GCSE Maths - Question 6 - 2022 - Paper 2
Question 6
Ella invests £7000 for 2 years in an account paying compound interest.
In the first year, the rate of interest is 3%
In the second year, the rate of interest is 1.5%... show full transcript
Worked Solution & Example Answer:Ella invests £7000 for 2 years in an account paying compound interest - Edexcel - GCSE Maths - Question 6 - 2022 - Paper 2
Step 1
Calculate the investment value after the first year
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Answer
To calculate the investment at the end of the first year, we apply the formula for compound interest:
t = P(1 + r)
where:
P is the principal amount (£7000)
r is the interest rate (3% or 0.03)
So,
t = 7000(1 + 0.03) = 7000 imes 1.03 = £7210
Step 2
Calculate the investment value after the second year
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Answer
Now we apply the same formula for the second year using the new principal (the amount from the end of the first year, £7210) and the new interest rate (1.5% or 0.015):
t = 7210(1 + 0.015)
t = 7210 imes 1.015 = £7317.15
Step 3
Final value of Ella’s investment
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Answer
At the end of 2 years, the value of Ella's investment is £7317.15.
