Question

Yvonne deposits $5000 in a bank account which pays 4% per annum compound interest. What is the total interest earned in 5 years, correct to the nearest dollar

Answer 1

Answer:

$1,083

Step-by-step explanation:

The compound interest formula is expressed as $A = P(1+r/n)^{nt}$

A is the total amount after n years

P is the amount deposited (principal)

r is the rate (in %)

t is the time (in years)

n is the time of compounding

Given P =  $5000, r = 4% = 0.04, t = 5 years, n = 1 year (per annum compound interest)

On substituting into the formula we have;

$A = 5000(1+0.04)^{1(5)} \\A = 5000(1.04)^{5} \\A = 5000*1.2166529\\A = 6,083.26$

Interest earned = Amount - Principal

Interest earned  = $6,083.26 - $5,000

Interest earned = $1,083.26 ≈ $1,083

Hence, the total interest earned in 5 years is $1,083 to the nearest dollars.