If you invest $1000 at an interest rate of 8% compounded annually, how much will

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Question: If you invest $1000 at an interest rate of 8% compounded annually, how much will you have after 2 years?

Options:

Correct Answer: $1166.40

Solution:

Total Amount = 1000(1 + 0.08)^2 = 1000(1.1664) = 1166.40

If you invest $1000 at an interest rate of 8% compounded annually, how much will you have after 2 years?

If you invest $1000 at an interest rate of 8% compounded annually, how much will you have after 2 years?

Correct Answer: 1166.40

Step 1: Identify the initial investment amount, which is $1000.
Step 2: Identify the annual interest rate, which is 8%. Convert this percentage to a decimal by dividing by 100, so 8% becomes 0.08.
Step 3: Determine the number of years the money will be invested, which is 2 years.
Step 4: Use the formula for compound interest: Total Amount = Principal * (1 + Interest Rate) ^ Number of Years.
Step 5: Plug in the values: Total Amount = 1000 * (1 + 0.08) ^ 2.
Step 6: Calculate (1 + 0.08), which equals 1.08.
Step 7: Raise 1.08 to the power of 2: (1.08)^2 = 1.1664.
Step 8: Multiply the initial investment by this result: Total Amount = 1000 * 1.1664.
Step 9: Calculate the final amount: 1000 * 1.1664 = 1166.40.

Compound Interest – Understanding how to calculate the future value of an investment using the formula for compound interest.