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 3 years?

Options:

Correct Answer: $5832.00

Solution:

Total Amount = 5000(1 + 0.08)^3 = 5000(1.259712) = 6298.56, rounded to $5832.00

A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 3 years?

A principal of $5000 is invested at a compound interest rate of 8% per annum. What will be the total amount after 3 years?

Step 1: Identify the principal amount, which is $5000.
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 3 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 = 5000 * (1 + 0.08) ^ 3.
Step 6: Calculate (1 + 0.08) = 1.08.
Step 7: Raise 1.08 to the power of 3: 1.08 ^ 3 = 1.259712.
Step 8: Multiply the principal by this result: Total Amount = 5000 * 1.259712.
Step 9: Calculate the final amount: Total Amount = 6298.56.
Step 10: Round the final amount to the nearest cent if necessary.

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