Question

Assume a company has a $ 120000 investment that earns 5​% interest compounded annually. At the end of Year 2 of owning this​ investment, the company will have earned how much in​ interest?

Answer 1

The company will have earned $12,300 in interest at the end of Year 2.

Step-by-step explanation:

To calculate the compound interest, we can use the formula A = P(1 + r/n)nt, where A is the total amount including interest, P is the principal amount (initial investment), r is the annual interest rate as a decimal, n is the number of times interest is compounded per year, and t is the number of years.

In this case, the principal amount is $120,000, the annual interest rate is 5%, and interest is compounded annually.

Plugging in the values into the formula, we have A = 120000(1 + 0.05/1)2 = $132,300. Therefore, the company will have earned $132,300 - $120,000 = $12,300 in interest at the end of Year 2.