Compound Interest
Q. A principal amount of $2500 is invested at a compound interest rate of 7% per annum. What will be the amount after 5 years?
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A.
$3500
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B.
$3502.50
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C.
$3520.25
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D.
$3525.00
Solution
Amount = P(1 + r)^n = 2500(1 + 0.07)^5 = 2500(1.402552) = $3506.38.
Correct Answer: C — $3520.25
Q. A sum of $3000 is invested at a compound interest rate of 7% per annum. What will be the total amount after 5 years?
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A.
$4200.00
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B.
$4205.00
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C.
$4210.00
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D.
$4215.00
Solution
Total Amount = 3000(1 + 0.07)^5 = 3000(1.402552) = 4207.66
Correct Answer: C — $4210.00
Q. A sum of money doubles itself in 5 years at compound interest. What is the rate of interest?
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A.
10%
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B.
12%
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C.
15%
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D.
20%
Solution
Using the formula A = P(1 + r)^n, if A = 2P, then 2 = (1 + r)^5. Solving gives r = 0.10 or 10%.
Correct Answer: A — 10%
Q. A sum of money invested at compound interest grows to $5000 in 4 years at a rate of 6% per annum. What was the principal?
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A.
$4000
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B.
$4500
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C.
$3500
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D.
$3000
Solution
Let P be the principal. A = P(1 + r)^n; 5000 = P(1 + 0.06)^4; P = 5000 / 1.262476 = $3960.00.
Correct Answer: B — $4500
Q. If $2000 is invested at a compound interest rate of 6% per annum, what will be the total amount after 3 years?
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A.
$2380.00
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B.
$2260.00
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C.
$2120.00
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D.
$2400.00
Solution
Amount = P(1 + r)^n = 2000(1 + 0.06)^3 = 2000(1.191016) = $2380.03
Correct Answer: A — $2380.00
Q. If $5000 is invested at a compound interest rate of 4% per annum, what will be the total amount after 10 years?
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A.
$7400
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B.
$7405
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C.
$6000
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D.
$6005
Solution
Amount = P(1 + r)^n = 5000(1 + 0.04)^10 = 5000(1.48024) = $7401.20.
Correct Answer: A — $7400
Q. If a sum of money amounts to $8000 in 3 years at compound interest, what was the principal if the rate of interest is 5%?
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A.
$6000
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B.
$6500
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C.
$7000
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D.
$7500
Solution
Let P be the principal. A = P(1 + r)^n; 8000 = P(1 + 0.05)^3; P = 8000 / 1.157625 = $6912.87.
Correct Answer: A — $6000
Q. If the compound interest on a certain sum for 2 years at 8% per annum is $320, what is the principal amount?
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A.
$4000
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B.
$5000
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C.
$6000
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D.
$8000
Solution
Let P be the principal. CI = P[(1 + r)^n - 1] = P[(1 + 0.08)^2 - 1] = P[0.1664]. Thus, 320 = P * 0.1664, P = $5000.
Correct Answer: B — $5000
Q. What is the compound interest on $1200 for 3 years at a rate of 9% per annum?
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A.
$350.00
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B.
$400.00
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C.
$450.00
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D.
$500.00
Solution
CI = A - P; A = P(1 + r)^n = 1200(1 + 0.09)^3 = 1200(1.295029) = $1554.03, CI = 1554.03 - 1200 = $354.03.
Correct Answer: B — $400.00
Q. What will be the amount on a principal of $1000 after 2 years at an annual compound interest rate of 5%?
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A.
$1102.50
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B.
$1050.00
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C.
$1200.00
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D.
$1150.00
Solution
Amount = P(1 + r)^n = 1000(1 + 0.05)^2 = 1000(1.1025) = $1102.50
Correct Answer: A — $1102.50
Q. What will be the compound interest on $1500 for 4 years at a rate of 10% per annum?
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A.
$600
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B.
$700
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C.
$800
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D.
$900
Solution
CI = A - P; A = P(1 + r)^n = 1500(1 + 0.10)^4 = 1500(1.4641) = $2196.15, CI = 2196.15 - 1500 = $696.15.
Correct Answer: C — $800
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