A loan of $2000 is taken at a rate of 6% per annum. What will be the compound in

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Question: A loan of $2000 is taken at a rate of 6% per annum. What will be the compound interest after 2 years?

Options:

Correct Answer: $252

Solution:

Compound Interest = P(1 + r/n)^(nt) - P = 2000(1 + 0.06)^2 - 2000 = 2000(1.1236) - 2000 = 252.

A loan of $2000 is taken at a rate of 6% per annum. What will be the compound interest after 2 years?

A loan of $2000 is taken at a rate of 6% per annum. What will be the compound interest after 2 years?

Step 1: Identify the principal amount (P), which is $2000.
Step 2: Identify the annual interest rate (r), which is 6% or 0.06 in decimal form.
Step 3: Identify the number of years (t) for which the money is borrowed, which is 2 years.
Step 4: Use the compound interest formula: Compound Interest = P(1 + r)^t.
Step 5: Substitute the values into the formula: Compound Interest = 2000(1 + 0.06)^2.
Step 6: Calculate (1 + 0.06) = 1.06.
Step 7: Raise 1.06 to the power of 2: (1.06)^2 = 1.1236.
Step 8: Multiply this result by the principal: 2000 * 1.1236 = 2247.2.
Step 9: To find the compound interest, subtract the principal from this amount: 2247.2 - 2000 = 247.2.

Compound Interest – The interest calculated on the initial principal and also on the accumulated interest from previous periods.
Formula Application – Understanding and applying the compound interest formula: A = P(1 + r/n)^(nt).
Time Period – Recognizing the impact of the time period on the calculation of compound interest.