Question

What is the interest earnedfor a deposit of $5000 compounded annually at aninterest rate of 4% for 20 years?A) $5,955.62C) $4,872.68D) $6,872.68B) $8,955.62"If saving money is wrong. I don't want to be right."- William Shatner

Answer 1

A; The interest earned on the deposit is $5,955.62

Firstly, we write out the formula for us to use

We have that as follows;

`A\text{ = P(1 + }(r)/(n))^(nt)`

where A is the amount after some time

P is the amount deposited which is $5,000

r is the interest rate which is 4% which is same as 4/100 = 0.04

n is the number of times interest rate is compouded per year which is 1 (once per year)

t is the number of years which is 20

Substituting these values, we have;

`\begin{gathered} A\text{ = 5000(1 + }(0.04)/(1))^(20*1) \\ \\ A=5000(1.04)^(20) \\ \\ A\text{ = \$10,955.62} \end{gathered}`

To get the interest rate, we subtract the principal from the amount

We have this as;

`\begin{gathered} I\text{ = A-P} \\ I\text{ = 10,955.62 - 5000} \\ I\text{ = \$5,955.62} \end{gathered}`