A principal amount of $8000 is invested at a compound interest rate of 7% per an

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Question: A principal amount of $8000 is invested at a compound interest rate of 7% per annum. What will be the total amount after 3 years?

Options:

Correct Answer: $9784.00

Solution:

Amount = P(1 + r)^n = 8000(1 + 0.07)^3 = 8000(1.225043) = $9800.34.

A principal amount of $8000 is invested at a compound interest rate of 7% per annum. What will be the total amount after 3 years?

A principal amount of $8000 is invested at a compound interest rate of 7% per annum. What will be the total amount after 3 years?

Step 1: Identify the principal amount (P), which is $8000.
Step 2: Identify the annual interest rate (r), which is 7%. Convert this to decimal form by dividing by 100, so r = 0.07.
Step 3: Identify the number of years (n), which is 3 years.
Step 4: Use the compound interest formula: Amount = P(1 + r)^n.
Step 5: Substitute the values into the formula: Amount = 8000(1 + 0.07)^3.
Step 6: Calculate (1 + 0.07) = 1.07.
Step 7: Raise 1.07 to the power of 3: (1.07)^3 = 1.225043.
Step 8: Multiply this result by the principal amount: Amount = 8000 * 1.225043.
Step 9: Calculate the final amount: Amount = $9800.34.

Compound Interest – Understanding how compound interest works and how to apply the formula to calculate the total amount after a certain period.
Exponents – Applying the exponent in the compound interest formula correctly to determine the growth over multiple periods.
Financial Literacy – Basic knowledge of investment principles and the impact of interest rates on savings.