Question

An investment of $2,000 is earning interest at the rate of 6.2% compounded quarterly over 5 years. Approximately how much interest is earned on the investment?
a.
$724.67
b.
$2127.72
c.
$720.37
d.
$2720.37

Answer 1

A=2,000×(1+0.062÷4)^(4×5)
A=2,720.37
Interest earned 2720.37-2000=720.37

Answer 2

Answer:

C.  $720.37

Step-by-step explanation:

An investment of $2,000 is earning interest at the rate of 6.2% compounded quarterly over 5 years.

We know that,

$A=P\left(1+\dfrac{r}{n}\right)^{n\cdot t}$

here,

A = Future amount,

P = Principal = $2000

r = Rate of interest = 6.2% = 0.062

n = Number of period = 4 (as compounded quarterly)

t = time period = 5 years

Putting the values,

$A=2000\left(1+\dfrac{0.062}{4}\right)^{4\cdot 5}$

$=2000\left(1+0.0155\right)^{20}$

$=2000\left(1.0155\right)^{20}$

$=\ 2720.37$

So the interest will be,

$=\text{Future amount}-\text{Principal}$

$=2720.37-2000=\ 720.37$