If a person invests $1000 at an interest rate of 5% per annum, how much interest

₹0.0

Question: If a person invests $1000 at an interest rate of 5% per annum, how much interest will he earn in 3 years under compound interest?

Options:

Correct Answer: $157.63

Solution:

Amount = P(1 + r/n)^(nt) = 1000(1 + 0.05)^3 = 1000(1.157625) = $1157.63. Interest = $1157.63 - $1000 = $157.63.

If a person invests $1000 at an interest rate of 5% per annum, how much interest will he earn in 3 years under compound interest?

If a person invests $1000 at an interest rate of 5% per annum, how much interest will he earn in 3 years under compound interest?

Step 1: Identify the principal amount (P), which is $1000.
Step 2: Identify the interest rate (r), which is 5% per annum. Convert this to decimal form: 5% = 0.05.
Step 3: Identify the number of years (t) for the investment, which is 3 years.
Step 4: Use the compound interest formula: Amount = P(1 + r)^t.
Step 5: Substitute the values into the formula: Amount = 1000(1 + 0.05)^3.
Step 6: Calculate (1 + 0.05) = 1.05.
Step 7: Raise 1.05 to the power of 3: 1.05^3 = 1.157625.
Step 8: Multiply this result by the principal: Amount = 1000 * 1.157625 = $1157.63.
Step 9: Calculate the interest earned by subtracting the principal from the total amount: Interest = $1157.63 - $1000 = $157.63.

Compound Interest – Understanding how compound interest is calculated over multiple periods.
Formula Application – Applying the compound interest formula correctly to find the total amount and interest earned.