Question

What is amount of interest I earned on $4,000 deposited in a savings account with 4% interest compounded annually after 4 years?

Give answer in US dollars and cents, rounded to the nearest cent. Do NOT enter "$" sign

Answer 1

$ 679.43

Explanation:

Since, the amount formula in compound interest is,

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

Where,

P = initial amount,

r = annual rate of interest,

n = number of compounding periods in a year,

t = number of years,

Here, P = $ 4,000, r = 4% = 0.04, t = 4 years, n = 1,

So, the amount after 4 years would be,

`=4000(1+0.04)^4\approx \$4679.43`

Hence, the amount of interest,

`I=A-P=4679.43-4000 = \$ 679.43`