Question

10 years ago, John opened a savings account with the Citizens Bank by depositing $10,000. The account pays 5% simple interest. 5 years after his first deposit, he made another deposit of $5,000. What will be the total amount in the account 5 years from now?

Answer 1

Total amount in the account 5 years from now $ 25,000

Working:

There are two investments made -Deposit of $ 10,000 and $ 5,000.

Life of Investments of $ 10,000 is 15 years(10 years ago to 5 years from now) and $ 5,000 is 10 years(5 years ago to 5 years from now)

Interest earned on first deposit

=

Deposit x Simple interest rate x life in years

=

$       10,000

x

5%

x

15

=

$         7,500

Interest earned on second deposit

=

Deposit x Simple interest rate x life in years

=

$         5,000

x

5%

x

10

=

$         2,500

Total Amount in account 5 years from now is calculated as follows:

First deposit

$       10,000

Second Deposit

$         5,000

Interest earned on first deposit

$         7,500

Interest earned on second deposit

$         2,500

Total amount in the account

$       25,000