Question

Use the compound interest formula, A = P(1 + r/n)^(nt), to find the compound interest earned on an account with $700 invested at 4.5% for 2 years.

Options:

1. 763.00
2. 64.42
3. 31.50
4. 771.75

Answer 1

The compound interest earned on an account with an investment of $700 at an annual interest rate of 4.5% over 2 years is $64.42.

Step-by-step explanation:

To calculate the compound interest earned on an account with $700 invested at 4.5% for 2 years, we should use the compound interest formula A =
`P (1 + r/n)^((nt))`, where:

• P is the principal amount (the initial amount of money)
• r is the annual interest rate (decimal)
• n is the number of times that interest is compounded per year
• t is the time the money is invested for, in years

In this case, the formula becomes A =
`700(1 + 0.045/1)^((1*2))`, because interest is likely compounded annually (n=1) if not otherwise specified. Simplifying, we get:

A =
`700(1 + 0.045)^(2)`

A =
`700 (1.045)^(2)`

A = 700 * 1.092025

A = 764.42

Therefore, the total amount in the account after 2 years would be $764.42. To find the compound interest earned, we subtract the initial principal from the total amount: $764.42 - $700 = $64.42.

Thus, the correct option for the compound interest earned is 2. $64.42.