{"id":222744,"date":"2025-05-31T17:22:27","date_gmt":"2025-05-31T17:22:27","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=222744"},"modified":"2025-05-31T17:22:30","modified_gmt":"2025-05-31T17:22:30","slug":"an-account-with-a-250-balance-accrues-2-annually","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/31\/an-account-with-a-250-balance-accrues-2-annually\/","title":{"rendered":"An account with a $250 balance accrues 2% annually."},"content":{"rendered":"\n<p>An account with a $250 balance accrues 2% annually. If no deposits or withdrawals are made, what will happen to the interest?<br>An account with a $250 balance accrues 2% annually. If no deposits or withdrawals are made, what will happen to the interest?<\/p>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-1-color\">The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p>If no deposits or withdrawals are made, <strong>the account will earn interest annually at a rate of 2%<\/strong>, meaning the balance will gradually grow over time due to <strong>compound interest<\/strong>. The interest will continue to be calculated based on the growing balance each year.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation <\/h3>\n\n\n\n<p>An account with a $250 balance that accrues <strong>2% annual interest<\/strong> is earning <strong>compound interest<\/strong> if the interest is added to the principal each year. This means that each year&#8217;s interest is calculated not just on the initial $250, but also on any interest already earned.<\/p>\n\n\n\n<p>Let\u2019s look at the first few years:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Year 1<\/strong>:<br>Interest = $250 \u00d7 2% = <strong>$5<\/strong><br>New balance = $250 + $5 = <strong>$255<\/strong><\/li>\n\n\n\n<li><strong>Year 2<\/strong>:<br>Interest = $255 \u00d7 2% = <strong>$5.10<\/strong><br>New balance = $255 + $5.10 = <strong>$260.10<\/strong><\/li>\n\n\n\n<li><strong>Year 3<\/strong>:<br>Interest = $260.10 \u00d7 2% \u2248 <strong>$5.20<\/strong><br>New balance \u2248 $265.30<\/li>\n<\/ul>\n\n\n\n<p>This process continues each year. The interest earned increases slightly each time because it is being calculated on a growing balance. This is the essence of compound interest: <strong>interest earning interest<\/strong>.<\/p>\n\n\n\n<p>If you leave the account untouched for many years, the balance will grow steadily, even without any new deposits. Although a 2% annual interest rate is relatively low, over long periods (e.g., 10, 20, or 30 years), the effects of compounding can become significant.<\/p>\n\n\n\n<p>The formula for compound interest is:<br><strong>A = P(1 + r)^t<\/strong>,<br>where:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>A<\/em> = future value<\/li>\n\n\n\n<li><em>P<\/em> = principal ($250)<\/li>\n\n\n\n<li><em>r<\/em> = annual interest rate (0.02)<\/li>\n\n\n\n<li><em>t<\/em> = number of years<\/li>\n<\/ul>\n\n\n\n<p>This formula shows how the balance increases exponentially over time, not linearly. So, if no transactions are made, the account balance will <strong>grow slowly but continuously<\/strong>, solely due to the compounding of the 2% annual interest<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/05\/learnexams-banner9-96.jpeg\" alt=\"\" class=\"wp-image-222745\"\/><\/figure>\n\n\n\n<p>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>An account with a $250 balance accrues 2% annually. If no deposits or withdrawals are made, what will happen to the interest?An account with a $250 balance accrues 2% annually. If no deposits or withdrawals are made, what will happen to the interest? The Correct Answer and Explanation is: If no deposits or withdrawals are [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-222744","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/222744","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=222744"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/222744\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=222744"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=222744"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=222744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}