Question

A principal of $2000 is invested at 8% interest, compounded annually. How much will the investment be worth afte 5 years?

Answer 1

If 8% of $2000 is added annually, then start with the first year.

8% of $2000 = 2000 · 0.08 which equals $160. So $160 is added the first year.
2. 2160 · 0.08 = $172.8 = $2332.80
3. 2332.80 · 0.08 = $186.624 = $2519.424
4. 2519.424 · 0.08 = $201.55392 = $2720.97792
5. 2720.97792 · 0.08 = $217.6782336 = $2938.6561536

Rounded to the nearest hundredth, after 5 years there will be $2938.66.