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A sum of money is invested at a compound interest rate of 8% per annum. How much

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Question: A sum of money is invested at a compound interest rate of 8% per annum. How much will it amount to in 3 years if the principal is $5000? (2023)

Options:

  1. $6000
  2. $6300
  3. $6400
  4. $6800

Correct Answer: $6400

Exam Year: 2023

Solution: 

Using A = P(1 + r)^n, we have A = 5000(1 + 0.08)^3 = $6400.

A sum of money is invested at a compound interest rate of 8% per annum. How much

Practice Questions

Q1
A sum of money is invested at a compound interest rate of 8% per annum. How much will it amount to in 3 years if the principal is $5000? (2023)
  1. $6000
  2. $6300
  3. $6400
  4. $6800

Questions & Step-by-Step Solutions

A sum of money is invested at a compound interest rate of 8% per annum. How much will it amount to in 3 years if the principal is $5000? (2023)
  • Step 1: Identify the principal amount (P), which is $5000.
  • 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 (n) the money is invested, 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 = 5000(1 + 0.08)^3.
  • Step 6: Calculate (1 + 0.08) = 1.08.
  • Step 7: Raise 1.08 to the power of 3: 1.08^3 = 1.259712.
  • Step 8: Multiply this result by the principal: A = 5000 * 1.259712.
  • Step 9: Calculate the final amount: A = 6298.56.
  • Step 10: Round the final amount to the nearest dollar: A = $6299.
  • Compound Interest – Understanding how compound interest works, including the formula A = P(1 + r)^n, where A is the amount, P is the principal, r is the interest rate, and n is the number of years.
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