If $1200 is invested at a compound interest rate of 8% per annum, what will be t

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Question: If $1200 is invested at a compound interest rate of 8% per annum, what will be the amount after 2 years?

Options:

Correct Answer: $1409.60

Solution:

Total Amount = 1200(1 + 0.08)^2 = 1200(1.1664) = 1399.68.

If $1200 is invested at a compound interest rate of 8% per annum, what will be the amount after 2 years?

If $1200 is invested at a compound interest rate of 8% per annum, what will be the amount after 2 years?

Step 1: Identify the principal amount, which is $1200.
Step 2: Identify the annual interest rate, which is 8%. Convert this percentage to a decimal by dividing by 100: 8% = 0.08.
Step 3: Identify the number of years the money is invested, which is 2 years.
Step 4: Use the compound interest formula: Total Amount = Principal × (1 + Interest Rate)^(Number of Years).
Step 5: Substitute the values into the formula: Total Amount = 1200 × (1 + 0.08)^2.
Step 6: Calculate (1 + 0.08) = 1.08.
Step 7: Raise 1.08 to the power of 2: (1.08)^2 = 1.1664.
Step 8: Multiply the principal by this result: Total Amount = 1200 × 1.1664.
Step 9: Calculate the final amount: Total Amount = 1399.68.

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 when compounded at a certain rate.
Mathematical Operations – Applying the correct order of operations to solve for the total amount after compounding.