Jane Smith took out a loan for $40,000 to pay for her child's education. The loan would be repaid at the end of eight years in o
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Compound interest is the adding of interest to the principle sum of a loan or deposit. The amount of money in the account after 2 years is $7426.30, while the interest earned in 2 years is $426.30.
<h3>What is compound interest?</h3>Interest on interest, or compound interest, is the adding of interest to the principle sum of a loan or deposit. It's the outcome of reinvesting interest rather than paying it out, so that interest is received on the principal plus previously collected interest in the next quarter.,
where A is the final amount
P is the principal amount
r is the rate of interest
n is the number of times interest is charged in a year
t is the number of years
Given the principal amount is $7,000 while the rate of interest is 3% which is compounded annually.
A. The amount of money in the account after 2 years will be,
A = $7000(1 + 0.03)² = $7426.30
B. The amount of interest earned is will be,
The amount of interest earned = $7426.30 - $7000 = $426.30
Hence, the amount of money in the account after 2 years is $7426.30, while the interest earned in 2 years is $426.30.
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