You invest $500 at 4% annual interest, compounded annually. How much will you have after 2 years?
Answer
$540.8
How to solve it
1
Year 1: $500 × 1.04 = $520
2
Year 2: $520 × 1.04 = $540.80
Hints
Calculate first year
Use Year 1 result for Year 2 calculation
Compound means you earn interest on interest