What is the compound interest on $1200 at a rate of 10% per annum for 1 year?

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Question: What is the compound interest on $1200 at a rate of 10% per annum for 1 year?

Options:

Correct Answer: $120.00

Solution:

Compound Interest = P(1 + r/n)^(nt) - P = 1200(1 + 0.10/1)^(1*1) - 1200 = 1200(1.10) - 1200 = 120.00

What is the compound interest on $1200 at a rate of 10% per annum for 1 year?

What is the compound interest on $1200 at a rate of 10% per annum for 1 year?

Step 1: Identify the principal amount (P), which is $1200.
Step 2: Identify the annual interest rate (r), which is 10% or 0.10 in decimal form.
Step 3: Identify the number of times interest is compounded per year (n), which is 1 for annual compounding.
Step 4: Identify the time in years (t), which is 1 year.
Step 5: Use the compound interest formula: Compound Interest = P(1 + r/n)^(nt) - P.
Step 6: Substitute the values into the formula: Compound Interest = 1200(1 + 0.10/1)^(1*1) - 1200.
Step 7: Calculate the expression inside the parentheses: 1 + 0.10 = 1.10.
Step 8: Raise 1.10 to the power of (1*1), which is 1.10.
Step 9: Multiply 1200 by 1.10: 1200 * 1.10 = 1320.
Step 10: Subtract the principal from this amount: 1320 - 1200 = 120.
Step 11: The compound interest is $120.

Compound Interest – The interest calculated on the initial principal, which also includes all the accumulated interest from previous periods.
Interest Rate – The percentage at which interest is calculated on the principal amount.
Time Period – The duration for which the money is invested or borrowed, affecting the total interest accrued.