A principal of $5000 is invested at a compound interest rate of 8% per annum. Wh

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Question: A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 1 year?

Options:

Correct Answer: $5400.00

Solution:

Total Amount = 5000(1 + 0.08)^1 = 5000(1.08) = 5400.00

A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 1 year?

A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 1 year?

Step 1: Identify the principal amount, which is $5000.
Step 2: Identify the interest rate, which is 8% per annum. Convert this percentage to a decimal by dividing by 100, so 8% becomes 0.08.
Step 3: Determine the time period for the investment, which is 1 year.
Step 4: Use the compound interest formula: Total Amount = Principal × (1 + Interest Rate) ^ Time.
Step 5: Substitute the values into the formula: Total Amount = 5000 × (1 + 0.08) ^ 1.
Step 6: Calculate (1 + 0.08), which equals 1.08.
Step 7: Now calculate the total amount: Total Amount = 5000 × 1.08.
Step 8: Multiply 5000 by 1.08 to get the total amount, which is $5400.00.

Compound Interest – Understanding how compound interest works, including the formula for calculating the total amount after a certain period.