If a person invests $1000 in shares at a compound interest rate of 5% per annum,

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Question: If a person invests $1000 in shares at a compound interest rate of 5% per annum, what will be the amount after 2 years?

Options:

Correct Answer: $1102.50

Solution:

Amount = Principal * (1 + Rate/100)^Time = 1000 * (1 + 5/100)^2 = 1000 * 1.1025 = $1102.50

If a person invests $1000 in shares at a compound interest rate of 5% per annum, what will be the amount after 2 years?

If a person invests $1000 in shares 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 the initial investment. In this case, it is $1000.
Step 2: Identify the annual compound interest rate. Here, it is 5%.
Step 3: Identify the time period for the investment in years. In this case, it is 2 years.
Step 4: Convert the interest rate from a percentage to a 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 = 1000 * (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: 1000 * 1.1025 = 1102.50.
Step 10: The final amount after 2 years is $1102.50.

Compound Interest – Understanding how compound interest works, including the formula for calculating the future value of an investment.
Mathematical Operations – Performing calculations involving exponents and basic arithmetic operations.
Financial Literacy – Recognizing the importance of interest rates and time in investment growth.