Question

What is the compound interest if the principle is 2500, the rate is 8%, the time is 4 years, and it's compounded annually? Please add explanation

Answer 1

901.22

Explanation:

It is given that,

Principal = 2500

Rate of interest = 8% = 0.08 compounded annually.

No. of times interest compounded in a period = 1

Time is 4 years.

Formula for amount is

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

where, P is principal, r is rate of interest, n is number of times interest compounded in period and t is number of years.

Substitute P=2500, r=0.08, n=1 and t=4 in the above formula.

`A=2500(1+(0.08)/(1))^(1(4))`

`A=2500(1.08)^(4)`

`A\approx 3401.22`

So, the compound interest is

`C.I.=A-P`

`C.I.=3401.22-2500`

`C.I.=901.22`

Therefore, the compound interest is 901.22.