If You Deposit $100 Now with Interest Rate of 3

question 95

Essay

If you deposit $100 now with interest rate of 3 percent, after the first period you will have an amount equal to (100 + 100× 0.03) = 100(1 + 0.03); after the second period the amount will be 100(1 + 0.03) + [100(1 + 0.03)]×0.03 = 100(1 + 0.03)(1 + 0.03) = 100(1 + 0.03)2. If we continue this reasoning, we find out that the amount in the account after n periods is equal to $100(1 + 0.03)n. In general, if the interest rate is i percent, the formula for compound interest rate becomes (1 + i%/100)n. Suppose there is a tax rate of t percent on interest income. How does our formula change?

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Definitions:

Remembered

The act of recalling or retrieving information or experiences from one's past.

Three-Stage Model

A psychological model that describes memory as consisting of three stages: sensory memory, short-term memory, and long-term memory.

Serial Position Effect

A cognitive phenomenon where an individual is more likely to recall the first and last items in a series better than the middle items.

Psychology

The scientific study of behavior and mental processes.