A principal of $2500 is invested at a compound interest rate of 3% per annum. Wh

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Question: A principal of $2500 is invested at a compound interest rate of 3% per annum. What will be the amount after 6 years?

Options:

Correct Answer: $2925.00

Solution:

Total Amount = 2500(1 + 0.03)^6 = 2500(1.191016) = 2977.54

A principal of $2500 is invested at a compound interest rate of 3% per annum. What will be the amount after 6 years?

A principal of $2500 is invested at a compound interest rate of 3% per annum. What will be the amount after 6 years?

Correct Answer: 2977.54

Step 1: Identify the principal amount, which is $2500.
Step 2: Identify the annual interest rate, which is 3%. Convert this percentage to a decimal by dividing by 100: 3% = 0.03.
Step 3: Identify the number of years the money is invested, which is 6 years.
Step 4: Use the compound interest formula: Total Amount = Principal × (1 + Interest Rate) ^ Number of Years.
Step 5: Substitute the values into the formula: Total Amount = 2500 × (1 + 0.03) ^ 6.
Step 6: Calculate (1 + 0.03) = 1.03.
Step 7: Raise 1.03 to the power of 6: (1.03)^6 = 1.191016.
Step 8: Multiply the principal by this result: Total Amount = 2500 × 1.191016.
Step 9: Calculate the final amount: Total Amount = 2977.54.

Compound Interest – Understanding how compound interest works, including the formula for calculating the total amount after a certain number of years.