ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$18, 000.94
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$17, 220.94
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$16, 330.83
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$15, 083.94
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Detailed explanation-1: -You can calculate the simple interest you’ll earn in a savings account by multiplying the account balance by the interest rate by the time period the money is in the account. Note that the interest in a savings account is money you earn, not money you pay. Here’s the simple interest formula: Interest = P x R x T.
Detailed explanation-2: -How Compound Interest Works. Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.
Detailed explanation-3: -Summary: An investment of $10000 today invested at 6% for five years at simple interest will be $13, 000.
Detailed explanation-4: -Solution: We use the present value formula, where A is $20, 000, r is 6% or 0.06, n is 12, and t is 5 years. Approximately $14, 827.45 should be invested today in order to accumulate to $20, 000 in five years.