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What is the compound interest on $1200 for 3 years at a rate of 9% per annum?

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Question: What is the compound interest on $1200 for 3 years at a rate of 9% per annum?

Options:

  1. $350.00
  2. $400.00
  3. $450.00
  4. $500.00

Correct Answer: $400.00

Solution: 

CI = A - P; A = P(1 + r)^n = 1200(1 + 0.09)^3 = 1200(1.295029) = $1554.03, CI = 1554.03 - 1200 = $354.03.

What is the compound interest on $1200 for 3 years at a rate of 9% per annum?

Practice Questions

Q1
What is the compound interest on $1200 for 3 years at a rate of 9% per annum?
  1. $350.00
  2. $400.00
  3. $450.00
  4. $500.00

Questions & Step-by-Step Solutions

What is the compound interest on $1200 for 3 years at a rate of 9% per annum?
Correct Answer: $354.03
  • Step 1: Identify the principal amount (P), which is $1200.
  • Step 2: Identify the interest rate (r), which is 9% per annum. Convert this to decimal form by dividing by 100: 9% = 0.09.
  • Step 3: Identify the number of years (n), which is 3 years.
  • Step 4: Use the formula for compound interest to find the total amount (A) after 3 years: A = P(1 + r)^n.
  • Step 5: Substitute the values into the formula: A = 1200(1 + 0.09)^3.
  • Step 6: Calculate (1 + 0.09) = 1.09.
  • Step 7: Raise 1.09 to the power of 3: (1.09)^3 = 1.295029.
  • Step 8: Multiply this result by the principal: A = 1200 * 1.295029 = $1554.03.
  • Step 9: Calculate the compound interest (CI) by subtracting the principal from the total amount: CI = A - P = 1554.03 - 1200.
  • Step 10: The compound interest is CI = $354.03.
  • Compound Interest – The interest calculated on the initial principal and also on the accumulated interest from previous periods.
  • Formula Application – Understanding and applying the formula A = P(1 + r)^n to calculate the total amount after interest.
  • Rate and Time – Recognizing the importance of the interest rate and the time period in calculating compound interest.
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