Question

$5000 is put into an empty savings account with a nominal interest rate of 5%. No other contributions are made to the account. with monthly compounding, how much interest will have been earned after 5 years? acco orew a. $1250 b. $1380c. $1410 d. $1420

Answer 1

Answer:

Interest in 5 years will be $1418.07 which is near about $1420

So option (D) will be correct answer

Explanation:

We have given amount invested, that is principal amount P = $5000

Rate of interest r = 5 %

Time taken t = 5 years

As interest is compounded monthly so rate of interest $=\frac{5}{12}=0.416%$

And time period n = 12×5 = 60 period

So total amount after 5 year will be equal to

$A=P(1+\frac{r}{100})^n$

$A=5000(1+\frac{0.417}{100})^{60}$

$A=5000\times 1.2836=6418.07$

We have to find the interest

Interest will be equal to = total amount - principal amount = $6418.07 - $5000 = $1418.07

Which is near about $1420 so option (D) will be correct answer