[Solved] Harry invests £6000 in a savings account. The account pays 3.4% compound interest per year. Work out the value of his investment after three years. Give your answer to the nearest penny.

Harry invests £6000 in a savings account. The account pays 3.4% compound interest per year. Work out the value of his investment after three years. Give your answer to the nearest penny.

Concept used

The concept used in this question is compound interest, which is the interest earned on an investment that is reinvested rather than paid out to the investor.

In this case, Harry’s investment earns interest each year, which is added to the initial investment and becomes part of the principal on which future interest is calculated.

This means the investment grows faster than if the interest were not reinvested.

Solution: According to the question, it is given;

Amount of investment made by Harry P = £6000

Rate of interest R = 3.4%

Time t = 3 years

We will use the following formula to calculate the interest rate after three years.

A = P ( 1 + r )^t

Substituting the value of P, r and t in the above equation, we get

A = 6000 ( 1 + 0.034 )³

A = 6000 ( 1.105507304 )

A = 6633.04

The interest earned in 3 years will be = Total amount after 3 three years – the amount invested.

Interest earned in 3 years = 6633.04 – 6000

Interest earned in 3 years = 633.04

Hence, after three years, the amount in the account will be £6633.04, and the interest earned is £633.04.

Also, check: Joan invests £6000 in a savings account.

Conclusion for Harry invests £6000 in a savings account

Harry invests £6000 in a savings account. The account pays 3.4% compound interest per year. The amount after three years in the account will be £6633.04, and the interest earned is £633.04.