How much interest did she earn? (compound interest)
Anne inherited some money from her grandfather and put it in a bank account that earns 10% interest compounded quarterly. After 4 years, Anne had $600.00 in the bank account. How much interest did she earn? (ROUND TO THE NEAREST CENT)
Anne inherited some money from her grandfather and put it in a bank account that earns 10% interest compounded quarterly. After 4 years, Anne had $600.00 in the bank account. How much interest did she earn? (ROUND TO THE NEAREST CENT)
2 Answers
Total Interest of 4 years is:
Explanation:
Given:
Annual compound interest is 10%
Calculation cycle: 4 times a year.
Final sum in account: $600.00 after 4 years.
Let the initial unknown principle sum be
Let the total interest in dollars be
Let the count of years be
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As the is a cycle of 4 calculations per year we have the indices of
This is over 4 years so
Rounding gives:
Thus the interest is the difference.
Explanation:
Compound interest is given by the formula:
Where:
We are give interest rate of
compounding period is quarterly so,
Time period is 4 years so:
To find the amount of interest earned, we first need to find the present value:
Using:
Interest earned is: