Question

An investment of $2000.00 is earning interest at the rate of 6.2% compounded quarterly over 5 years. Approximately how much interest is earned on the investment?

Answer 1

Answer:

$720.37

Step-by-step explanation:

To solve this problem, we can use the compound interest formula:

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

P = initial balance

r = interest rate (decimal)

n = number of times compounded annually

t = time

First, change 6.2% into a decimal:

6.2% -> $\frac{6.2}{100}$ -> 0.062

Since the interest is compounded quarterly, we will use 4 for n. Lets plug in the values now:

$A=2,000(1+\frac{0.062}{4})^{4(5)}$

$A=2,720.37$

To find the interest earned, just subtract the principal of 2,000 from 2,720.37:

$2,720.37-2000=720.37$

The interest earned is $720.37