A person borrowed $5000 at a compound interest rate of 10% per annum. What will

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Question: A person borrowed $5000 at a compound interest rate of 10% per annum. What will be the amount after 2 years?

Options:

Correct Answer: $6050

Solution:

Amount = P(1 + r)^n = 5000(1 + 0.1)^2 = 5000(1.21) = $6050.

A person borrowed $5000 at a compound interest rate of 10% per annum. What will be the amount after 2 years?

A person borrowed $5000 at a compound interest rate of 10% per annum. What will be the amount after 2 years?

Step 1: Identify the principal amount (P), which is $5000.
Step 2: Identify the annual interest rate (r), which is 10%. Convert this to decimal form by dividing by 100, so r = 0.1.
Step 3: Identify the number of years (n), which is 2 years.
Step 4: Use the compound interest formula: Amount = P(1 + r)^n.
Step 5: Substitute the values into the formula: Amount = 5000(1 + 0.1)^2.
Step 6: Calculate (1 + 0.1) = 1.1.
Step 7: Raise 1.1 to the power of 2: (1.1)^2 = 1.21.
Step 8: Multiply the principal amount by 1.21: Amount = 5000 * 1.21.
Step 9: Calculate the final amount: 5000 * 1.21 = $6050.

Compound Interest – Understanding how to calculate the future value of an investment using 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.