What is the compound interest on $5000 at a rate of 6% per annum for 4 years?

What is the compound interest on $5000 at a rate of 6% per annum for 4 years?

Correct Answer: 1312.38

Step 1: Identify the principal amount (P), which is $5000.
Step 2: Identify the annual interest rate (r), which is 6%. Convert this to decimal form by dividing by 100: 6% = 0.06.
Step 3: Identify the number of years (t), which is 4 years.
Step 4: Use the compound interest formula: A = P(1 + r)^t, where A is the total amount after t years.
Step 5: Substitute the values into the formula: A = 5000(1 + 0.06)^4.
Step 6: Calculate (1 + 0.06) = 1.06.
Step 7: Raise 1.06 to the power of 4: (1.06)^4 = 1.26247696.
Step 8: Multiply this result by the principal: A = 5000 * 1.26247696.
Step 9: Calculate A = 6312.38.
Step 10: To find the compound interest, subtract the principal from the total amount: Compound Interest = A - P = 6312.38 - 5000.
Step 11: Calculate the compound interest: Compound Interest = 1312.38.

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