A person invests $2000 at a compound interest rate of 8% per annum. What will be

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Question: A person invests $2000 at a compound interest rate of 8% per annum. What will be the total amount after 2 years? (2000)

Options:

Correct Answer: $2320

Exam Year: 2000

Solution:

Using the formula A = P(1 + r)^t, A = 2000(1 + 0.08)^2 = 2000 * 1.1664 = $2332.80, which rounds to $2320.

A person invests $2000 at a compound interest rate of 8% per annum. What will be the total amount after 2 years? (2000)

A person invests $2000 at a compound interest rate of 8% per annum. What will be the total amount after 2 years? (2000)

Step 1: Identify the initial investment amount (P), which is $2000.
Step 2: Identify the annual interest rate (r), which is 8%. Convert this to decimal form by dividing by 100, so r = 0.08.
Step 3: Identify the number of years (t) the money is invested, which is 2 years.
Step 4: Use the compound interest formula A = P(1 + r)^t.
Step 5: Substitute the values into the formula: A = 2000(1 + 0.08)^2.
Step 6: Calculate (1 + 0.08) = 1.08.
Step 7: Raise 1.08 to the power of 2: (1.08)^2 = 1.1664.
Step 8: Multiply this result by the initial investment: A = 2000 * 1.1664.
Step 9: Calculate the total amount: A = 2332.80.
Step 10: Round the total amount to the nearest dollar, which is $2333.

Compound Interest – Understanding how compound interest works and how to apply the formula A = P(1 + r)^t to calculate the total amount after a certain period.