To find the compound interest, we need to use the formula:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (in decimal form)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or the loan is outstanding
For the first case:
P = $30,000
r = 5% = 0.05
n = 1 (compounded annually)
t = 2 years
A = 30,000(1 + 0.05/1)^(1*2)
A = 30,000(1 + 0.05)^2
A = 30,000(1.05)^2
A = 30,000(1.1025)
A = $33,075
Compound Interest = A - P
Compound Interest = $33,075 - $30,000
Compound Interest = $3,075
Therefore, for $30,000 invested for 2 years at 5% per annum, the compound interest is $3,075.
For the second case:
P = $600,000
r = 5% = 0.05
n = 1 (compounded annually)
t = 2 years
A = 600,000(1 + 0.05/1)^(1*2)
A = 600,000(1 + 0.05)^2
A = 600,000(1.05)^2
A = 600,000(1.1025)
A = $661,500
Compound Interest = A - P
Compound Interest = $661,500 - $600,000
Compound Interest = $61,500
Therefore, for $600,000 invested for 2 years at 5% per annum, the compound interest is $61,500.
Find the compound interest on the following
30,000 for 2yrs at 5percent per annum
600,000 for 2yrs at 5percent per annum
1 answer