Question

If $4,780 is deposited in an account that pays 1.25% interest compounded annually, how much interest is in the account at the end of 8 years? A $5,279.44 B $500.44 C$ 478.00 D $499.44

Answer 1

We can calculate the interest as the difference between the future and the present value of the investment:

`I=FV-PV`

The present value is $4780.

The annual interest rate is r=1.25/100=0.0125.

The number of years is 8, so n=8.

We can calculate the future value as:

`\begin{gathered} FV=PV(1+r)^n \\ FV=4780\cdot(1+0.0125)^8 \\ FV=4780\cdot1.0125^8 \\ FV\approx4780\cdot1.1045 \\ FV\approx5279.44 \end{gathered}`

Then, we can calculate the interest as:

`I=FV-PV=5279.44-4780=499.44`

Answer: D. $499.44