Question

If the simple interest on a sum of money at 5% per annum for 3 years is $

1200, then the compound interest on the same sum for the same period
at the same rate will be .........
*​

Answer 1

$1207.96

Explanation:

The accumulated value for simple interest is defined by the following formula:

FV=PV(1+it)

we have (where x is the present value or PV)

1200= x(1+.05*3)

Solve for x

1200=1.15x

x=1043.478261

We now need to use the equation for annually compounding interest

`FV=PV(1+i)^t`

We have

`1043.4782(1+.05)^3\\1207.956522`

which rounds to

$1207.96