If $5000 is invested at a compound interest rate of 4% per annum, what will be t

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Question: If $5000 is invested at a compound interest rate of 4% per annum, what will be the total amount after 10 years?

Options:

Correct Answer: $7400

Solution:

Amount = P(1 + r)^n = 5000(1 + 0.04)^10 = 5000(1.48024) = $7401.20.

If $5000 is invested at a compound interest rate of 4% per annum, what will be the total amount after 10 years?

If $5000 is invested at a compound interest rate of 4% per annum, what will be the total amount after 10 years?

Correct Answer: $7401.20

Step 1: Identify the principal amount (P), which is $5000.
Step 2: Identify the annual interest rate (r), which is 4%. Convert this to decimal form by dividing by 100, so r = 0.04.
Step 3: Identify the number of years (n), which is 10 years.
Step 4: Use the compound interest formula: Amount = P(1 + r)^n.
Step 5: Substitute the values into the formula: Amount = 5000(1 + 0.04)^10.
Step 6: Calculate (1 + 0.04) = 1.04.
Step 7: Raise 1.04 to the power of 10: (1.04)^10 = 1.48024.
Step 8: Multiply this result by the principal: Amount = 5000 * 1.48024.
Step 9: Calculate the final amount: 5000 * 1.48024 = $7401.20.

Compound Interest – Understanding how compound interest works, including the formula A = P(1 + r)^n, where A is the total amount, P is the principal, r is the interest rate, and n is the number of years.