Question

Alex opened an investment account that pays compound interest of 4% compounded annually. If he deposits $2,500 and makes no other deposits or withdrawals, how much interest will he earn at the end of 2 years?​

Answer 1

Answer: $2,704.00

Explanation:

First, convert R as a percent to r as a decimal

r = R/100

r = 4/100

r = 0.04 rate per year,

Then solve the equation for A

A = P(1 + r/n)nt

A = 2,500.00(1 + 0.04/1)(1)(2)

A = 2,500.00(1 + 0.04)(2)

A = $2,704.00

Summary:

The total amount accrued, principal plus interest, with compound interest on a principal of $2,500.00 at a rate of 4% per year compounded 1 times per year over 2 years is $2,704.00.