Question

On your birthday, you deposit $540.00 in an account that pays 6% interest, compounded annually. How much is in the account 3 years later?

Answer 1

$540 is the amount of money deposited in the account
And the balance of the account which is $540 has a 6% increase once a year for 3 years.
6% interest means 6% of 540 is added once a year.
We have to convert the interest into a decimal, divide whatever the percentage is by 100.

`6/100=0.06`

Now we are working with the numbers we need, use multiplication to find 6% of 540.

`540xx0.06=32.40`

In just one year, the amount earned in interest is `$32.40` so in 3 years the amount earned will be

`32.40xx3=$97.20`

The balance of the account after 3 years will be

`540+97.20=$637.20`

Algebraically, the question can be answered this way
`fb=ib(i)(t)+ib`
Let `fb` = final balance = `637.20`
Let `ib` = initial balance = `540`
Let `i` = interest percentage divided by 100 `6/10=0.06`
Let `t` = the amount of time the initial balance stays in the account = `3`

`637.20=540(0.06)(3)+540`

You can use any letter to represent the numbers but make sure the final equation leads to the right solution.