A person invests $2000 at a compound interest rate of 5% per annum. What will be

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Question: A person invests $2000 at a compound interest rate of 5% per annum. What will be the total amount after 3 years? (2000)

Options:

Correct Answer: $2315.25

Exam Year: 2000

Solution:

Using A = P(1 + r)^n, we calculate A = 2000(1 + 0.05)^3 = $2315.25.

A person invests $2000 at a compound interest rate of 5% per annum. What will be the total amount after 3 years? (2000)

A person invests $2000 at a compound interest rate of 5% per annum. What will be the total amount after 3 years? (2000)

Step 1: Identify the principal amount (P), which is $2000.
Step 2: Identify the annual interest rate (r), which is 5%. Convert this to decimal form by dividing by 100: 5% = 0.05.
Step 3: Identify the number of years (n), which is 3 years.
Step 4: Use the compound interest formula A = P(1 + r)^n.
Step 5: Substitute the values into the formula: A = 2000(1 + 0.05)^3.
Step 6: Calculate (1 + 0.05) = 1.05.
Step 7: Raise 1.05 to the power of 3: 1.05^3 = 1.157625.
Step 8: Multiply this result by the principal amount: A = 2000 * 1.157625.
Step 9: Calculate the final amount: A = 2315.25.

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