Question

An investor invests $2,500 into a mutual fund and earns 5.75% on the principle for each of three years. How much interest has accused at the end of the period?

Answer 1

Interest in 3 years = $456.52

Explanation:

As we know the the formula of compound interest

Total amount =
`A(1+(r)/(n))^(nt)`

Here n = number of times amount is compounded

r = rate of interest

t = period

Here A = $2500

r = 0.0575

n = 1 (compounded annually)

t = 3 years

Therefore amount after 3 years

`P=2500(1+(.0575)/(1))^(3)`

P =2500(1.0575)³

= 2500×1.18

= $2956.52

We have to calculate the interest then

Interest = $2956.52-$2500 = $456.52

So after 3 years interest gained = $456.52

Answer 2

Accrued interest is 431.25

Explanation:

Only the principle amount of 2500 is earning interest at a rate of 5.75% per year and as such this is a typical simple interest problem. The interest earned at the end of the 3 years is evaluated as; 2500*(5.75/100)*3