How much will $2500 grow to in 3 years at a compound interest rate of 8% per ann

₹0.0

Question: How much will $2500 grow to in 3 years at a compound interest rate of 8% per annum?

Options:

Correct Answer: $3150.00

Solution:

Amount = P(1 + r/n)^(nt) = 2500(1 + 0.08/1)^(1*3) = 2500(1.259712) = 3150.00

How much will $2500 grow to in 3 years at a compound interest rate of 8% per annum?

How much will $2500 grow to in 3 years at a compound interest rate of 8% per annum?

Step 1: Identify the principal amount (P), which is $2500.
Step 2: Identify the annual interest rate (r), which is 8% or 0.08 in decimal form.
Step 3: Identify the number of times interest is compounded per year (n). Since it's compounded annually, n = 1.
Step 4: Identify the number of years (t), which is 3 years.
Step 5: Use the compound interest formula: Amount = P(1 + r/n)^(nt).
Step 6: Substitute the values into the formula: Amount = 2500(1 + 0.08/1)^(1*3).
Step 7: Simplify the expression inside the parentheses: 1 + 0.08 = 1.08.
Step 8: Calculate the exponent: 1 * 3 = 3.
Step 9: Now the formula looks like this: Amount = 2500(1.08)^3.
Step 10: Calculate (1.08)^3, which is approximately 1.259712.
Step 11: Multiply this result by the principal: Amount = 2500 * 1.259712.
Step 12: Calculate the final amount: 2500 * 1.259712 = 3150.00.

Compound Interest – The process of earning interest on both the initial principal and the accumulated interest from previous periods.
Formula Application – Understanding and correctly applying the compound interest formula: A = P(1 + r/n)^(nt).
Time Value of Money – The principle that money available now is worth more than the same amount in the future due to its potential earning capacity.