Question

An investment of $2,000 is earning interest at the rate of 6.2% compounded quarterly over 5 years. Approximately how much interest is earned on the investment?

a.
$724.67
b.
$2127.72
c.
$720.37
d.
$2720.37

Answer 1

A=2,000×(1+0.062÷4)^(4×5)
A=2,720.37
Interest earned 2720.37-2000=720.37

Answer 2

C. $720.37

Explanation:

An investment of $2,000 is earning interest at the rate of 6.2% compounded quarterly over 5 years.

We know that,

`A=P\left(1+(r)/(n)\right)^(n\cdot t)`

here,

A = Future amount,

P = Principal = $2000

r = Rate of interest = 6.2% = 0.062

n = Number of period = 4 (as compounded quarterly)

t = time period = 5 years

Putting the values,

`A=2000\left(1+(0.062)/(4)\right)^(4\cdot 5)`

`=2000\left(1+0.0155\right)^(20)`

`=2000\left(1.0155\right)^(20)`

`=\$2720.37`

So the interest will be,

`=\text{Future amount}-\text{Principal}`

`=2720.37-2000=\$720.37`