To solve the problem we will first calculate the remaining balance in Loren's Account after a year.
The balance in Loren's account after two years is £430.54.
Given to us
- Loren puts £600 in a bank account,
- the account pays 3% compound interest each year,
- after ONE year Loren withdraws £200
- Principal Amount that Loren put in her account, P = £600
- Rate of interest that bank pays, r = 3% = 0.03
Balance of Loren after one year
Using the compound interest formula,
Balance of Loren after one year = \(P(1+r)^t\)
Substituting values,
\(=600(1+0.03)^1\\= 600(1.03)\\= 618\)
Remaining Balance of Loren after one year
Now, as Loren takes £200 out of the account, the remaining balance would be,
= Balance of Loren after one year - £200
= £618 - £200
= £418
Balance in Loren's account after two years
In the second year, the balance will be paid on the remaining balance, therefore, applying the formula of compound interest,
P = £418
r = 0.03
t = 1
\(=P(1+r)^t\\=418(1+0.03)^1\\=418(1.03)\\= 430.54\)
Hence, the balance in Loren's account after two years is £430.54.
Learn more about Compound Interest:
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