Liam invests £8000 in a savings account for 4 years. The savings account pays compound interest at a rate of: 4.5 % for the first year, 2.75 % for all subsequent years.

Work out the value of Liam’s investment at the end of 4 years.

Please help i don't understand

The value of Liam's investment at the end of 4 years is £9069.764

Step-by-step explanation:

Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of an investment.

We multiply the principal amount by one plus the annual interest rate to the power of the number of compound periods to get a combined figure for principal and compound interest.

4.5% in the first year;

4.5/100 = 0.045

(1 + 0.045) × 8000 =

1.045 × 8000 = £8360.

2.75% for all subsequent year;

2.75/100 = 0.0275

1 + 0.0275=1.0275

Number of years is;

4-1=3years

Therefore,

8360 × (1.0275)^3 =

8360 × 1.0849 = £9069.764

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