Find the compound interest earned. Round to the nearest cent. Do not use an interest table.
-$5,000 at 7% compounded annually for 4 years
A)$1,553.98
B)$1,400.00
C)$1,125.22
D)$351.50

Question

Quizplus · Accepted Answer

To solve for compound interest, the formula is A=P(1+r/n)^(nt), where:
A = final amount
P = principal (initial) amount
r = annual interest rate as a decimal
n = number of times per year the interest is compounded
t = time in years

Plugging in the given values, we get:

A = 5000(1+0.07/1)^(1*4)
A = 5000(1.07)^4
A = 5000(1.3108)
A = 6554.01

To find the compound interest earned, we subtract the principal from the final amount:

Compound Interest = A - P
Compound Interest = 6554.01 - 5000
Compound Interest = 1554.01

Rounding to the nearest cent gives us $1,553.98 (choice A). Using the formula for compound interest:
A=P(1+r/n)^(nt)
Where A=Final Amount, P=Principal, r=annual interest rate, n=number of times compounded per year, t=number of years

Plugging in the values given:
A=5000(1+0.07/1)^(1*4)
A=5000(1.07)^4
A=$6,553.98

Subtracting the principal from the final amount gives the interest earned:
$6,553.98 - $5,000 = $1,553.98

Therefore, the compound interest earned is $1,553.98 rounded to the nearest cent, which is answer choice A.

Find the Compound Interest Earned