Question

Darrell has $4,873 in an account that earns 5% interest compounded annually.

To the nearest cent, how much interest will he earn in 2 years?

Answer 1

• Darrell will earn $499.48

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Use the formula for compound interest:

• 
  `A = P(1 + r/n)^(nt)`

where,

• A = the future amount,
• P = $4873, the initial amount,
• r = 5% = 0.05, the annual interest rate,
• n = 1, the number of compounds per year,
• t = 2, the time in years.

Plugging in the values given, we get:

• 
  `A = 4873(1 + 0.05/1)^(1\cdot2) = 4873(1.05)^2 = 5372.48`

To find the interest earned, subtract the principal from this amount:

• Interest = 5372.48 - 4873 = 499.48