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You are starting a savings account for college. You put $1,000 in as your starting balance. You earn simple interest at 10% every year. You also must pay 30% income tax on the interest earned annually. Calculate the balance for the account after 5 years

Respuesta :

semsee45

Answer:

$1,350

Step-by-step explanation:

Simple interest formula

I = Prt

where:

  • I = interest
  • P = principal
  • r = interest rate (in decimal form)
  • t = time (in years)

Given:

  • P = $1,000
  • r = 10% = 0.1
  • t = 5 years

⇒ Total interest earned = 1000 × 0.1 × 5 = $500

If you have to pay 30% income tax on the interest earned annually, then you will keep 70% of your earned interest.

⇒ 70% of $500 = 0.7 × $500 = $350

Account balance = principal + interest earned after tax

                             = $1,000 + $350

                             = $1,350

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