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tio also has invested $1,000 in a 10 year certificate of deposit. determine the amount of interest earned on this investment after 3 years if the interest rate is 3.00%, compounded annually.

User Mohanjot
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Final answer:

To calculate the interest earned on a $1,000 investment at 3% annual interest compounded annually after 3 years, the compound interest formula is used. After the calculations, the amount of interest is found to be approximately $92.73.

Step-by-step explanation:

To calculate the amount of interest earned on an investment of $1,000 in a certificate of deposit with a 3.00% interest rate compounded annually after 3 years, we can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:

  • A is the future value of the investment/loan, including interest
  • P is the principal investment amount ($1,000 in this case)
  • 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

We know that r is 3% or 0.03 in decimal form, n is 1 since the interest is compounded annually, and t is 3 years.

Substituting the values, we get:

A = 1000(1 + 0.03/1)^(1*3) = 1000(1 + 0.03)^3 = 1000(1.03)^3

Calculating this gives us:

A ≈ 1000(1.092727) ≈ $1092.73

The interest earned is the future value minus the initial principal:

Interest = A - P = 1092.73 - 1000 = $92.73

Therefore, the interest earned after 3 years is approximately $92.73.

User Tigran Saluev
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