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What is the compound interest on a principal of $1000 at an annual interest rate

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Question: What is the compound interest on a principal of $1000 at an annual interest rate of 5% for 2 years?

Options:

  1. $102.50
  2. $105.00
  3. $110.25
  4. $100.00

Correct Answer: $110.25

Solution: 

Compound Interest = P(1 + r/n)^(nt) - P = 1000(1 + 0.05/1)^(1*2) - 1000 = 1000(1.1025) - 1000 = 102.50.

What is the compound interest on a principal of $1000 at an annual interest rate

Practice Questions

Q1
What is the compound interest on a principal of $1000 at an annual interest rate of 5% for 2 years?
  1. $102.50
  2. $105.00
  3. $110.25
  4. $100.00

Questions & Step-by-Step Solutions

What is the compound interest on a principal of $1000 at an annual interest rate of 5% for 2 years?
  • Compound Interest – The interest calculated on the initial principal, which also includes all the accumulated interest from previous periods.
  • Formula Application – Understanding and applying the compound interest formula: A = P(1 + r/n)^(nt).
  • Interest Rate and Time – Recognizing the impact of the interest rate and the time period on the total amount of interest accrued.
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