An investor invests $1000 in a stock with a compound interest rate of 5% per ann

₹0.0

Question: An investor invests $1000 in a stock with a compound interest rate of 5% per annum. What will be the amount after 2 years?

Options:

Correct Answer: $1102.50

Solution:

Amount = Principal * (1 + Rate)^Time = 1000 * (1 + 0.05)^2 = 1000 * 1.1025 = $1102.50

An investor invests $1000 in a stock with a compound interest rate of 5% per annum. What will be the amount after 2 years?

An investor invests $1000 in a stock with a compound interest rate of 5% per annum. What will be the amount after 2 years?

Step 1: Identify the principal amount, which is the initial investment. In this case, it is $1000.
Step 2: Identify the annual compound interest rate. Here, it is 5%, which can be written as 0.05 in decimal form.
Step 3: Identify the time period for the investment. In this case, it is 2 years.
Step 4: Use the compound interest formula: Amount = Principal * (1 + Rate)^Time.
Step 5: Substitute the values into the formula: Amount = 1000 * (1 + 0.05)^2.
Step 6: Calculate (1 + 0.05), which equals 1.05.
Step 7: Raise 1.05 to the power of 2: (1.05)^2 = 1.1025.
Step 8: Multiply the principal amount by the result from Step 7: 1000 * 1.1025 = 1102.50.
Step 9: The final amount after 2 years is $1102.50.

Compound Interest – The process of earning interest on both the initial principal and the accumulated interest from previous periods.
Exponential Growth – Understanding how investments grow over time due to compounding.
Mathematical Calculation – Applying the formula for compound interest correctly to find the future value of an investment.