Question

Craig has $4,427 in an account. The interest rate is 2% compounded annually.

To the nearest cent, how much interest will he earn in 4 years?

Answer 1

$364.93

Explanation:

The accrued value of a principal using compound interest is given by:


`A = P(1 + r)^t\\`

where

compounding is done annually and

P = principal

r = annual interest rate as a decimal

t = number of years

Given
P = $4427
r = 2 = 0.02

t = 4 years

A = 4,427.00(1 + 0.02)⁴

A = 4427(1.02)⁴

A = $4,791.93

Interest earned = A- P = $4,791.93 - $4,427.00 = $364.93