Question

Sam invested $5000 in a GIC earning 8% compound interest per year. 1he interest gets added to the amount invested, so the next year Sam gets interest on the interest already earned, as well as on the original amount. How much will Sam's investment be worth at the end of 10 years?

Answer 1

Interest on interest, or compound interest, is the adding of interest to the principal sum of a loan or deposit. The worth of Sam's investment after the end of 10 years will be $10,794.62.

What is compound interest?

Interest on interest, or compound interest, is the adding of interest to the principal 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,

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

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

The value of Sam's investment after 10 years will be,

Value = $5000(1+0.08)¹⁰ = $10,794.624 ≈ $10,794.62

Hence, the worth of Sam's investment after the end of 10 years will be $10,794.62.

Learn more about Compound Interest:

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