Question

What would be the value of $150 after eight years if you earn 12 percent interest per year? A. $371.39 B. $415.96 C. $465.88

Answer 1

What would be the value of $150 after eight years if you earn 12 % interest per year? A. $371.39 B. $415.96 C. $465.88

The compound interest is applied, that is to say, each year the interest produced is accumulated to the outstanding capital and the interest of the next period is calculated on the new outstanding capital.

The formula for calculating compound interest is:

Compound interest = Total amount of Principal and interest in future less Principal amount at present = [P(1 + i)ⁿ] – P

(Where P = Principal, i = nominal annual interest rate in percentage terms, and n = number of compounding periods)

[P(1 + i)ⁿ] – P = P[(1 + i)ⁿ – 1] = $150[(1 + 12/100)⁸ – 1] = $150[(1.12)⁸ – 1] = $150[2.47596317629 - 1] = $150[1.47596317629] = $221.39

Total amount = $150 + $221.39 = $371.39

Answer : A.) $371.39

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