Question

An investment of $2000.00 is earning interest at the rate of 6.2% compounded quarterly over 5 years. Approximately how much interest is earned on the investment?

Answer 1

$720.37

Explanation:

To solve this problem, we can use the compound interest formula:

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

P = initial balance

r = interest rate (decimal)

n = number of times compounded annually

t = time

First, change 6.2% into a decimal:

6.2% ->
`(6.2)/(100)` -> 0.062

Since the interest is compounded quarterly, we will use 4 for n. Lets plug in the values now:

`A=2,000(1+(0.062)/(4))^(4(5))`

`A=2,720.37`

To find the interest earned, just subtract the principal of 2,000 from 2,720.37:

`2,720.37-2000=720.37`

The interest earned is $720.37