A sum of $800 is invested at a compound interest rate of 5% per annum. What will

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Question: A sum of $800 is invested at a compound interest rate of 5% per annum. What will be the amount after 2 years?

Options:

Correct Answer: $882

Solution:

Amount = Principal * (1 + Rate/100)^Time = 800 * (1 + 0.05)^2 = 800 * 1.1025 = $882

A sum of $800 is invested at a compound interest rate of 5% per annum. What will be the amount after 2 years?

A sum of $800 is invested at a compound interest rate of 5% per annum. What will be the amount after 2 years?

Step 1: Identify the principal amount, which is $800.
Step 2: Identify the interest rate, which is 5% per annum.
Step 3: Identify the time period for the investment, which is 2 years.
Step 4: Convert the interest rate from percentage to decimal by dividing by 100. So, 5% becomes 0.05.
Step 5: Use the compound interest formula: Amount = Principal * (1 + Rate)^Time.
Step 6: Substitute the values into the formula: Amount = 800 * (1 + 0.05)^2.
Step 7: Calculate (1 + 0.05), which equals 1.05.
Step 8: Raise 1.05 to the power of 2: 1.05^2 = 1.1025.
Step 9: Multiply the principal amount by the result: 800 * 1.1025 = 882.
Step 10: The final amount after 2 years is $882.

Compound Interest – Understanding how compound interest works, including the formula for calculating the future value of an investment.
Exponents – Applying exponent rules in the context of compound interest calculations.
Percentage Calculations – Converting percentage rates into decimal form for calculations.