If $1000 is invested at a compound interest rate of 6% per annum, what will be t

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Question: If $1000 is invested at a compound interest rate of 6% per annum, what will be the amount after 2 years?

Options:

Correct Answer: $1156.16

Solution:

Amount = Principal * (1 + Rate)^Time = 1000 * (1 + 0.06)^2 = 1000 * 1.1236 = $1123.60.

If $1000 is invested at a compound interest rate of 6% per annum, what will be the amount after 2 years?

If $1000 is invested at a compound interest rate of 6% per annum, what will be the amount after 2 years?

Step 1: Identify the principal amount, which is $1000.
Step 2: Identify the annual interest rate, which is 6%. Convert this to decimal form by dividing by 100, so 6% becomes 0.06.
Step 3: Identify the time period for the investment, which 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 + 0.06)^2.
Step 6: Calculate (1 + 0.06), which equals 1.06.
Step 7: Raise 1.06 to the power of 2: 1.06^2 = 1.1236.
Step 8: Multiply the principal by this result: 1000 * 1.1236 = 1123.60.
Step 9: The final amount after 2 years is $1123.60.

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 Operations – Applying basic arithmetic operations and understanding the order of operations in calculations.