Question

Using the formula in model 1, choose the correct answers for the total amount and amount of interest earned in the following compound interest problem.

$850 at 2% for 9 years, compounded annually.

Total Amount = $
Interest Amount =$

Answer 1

The total amount is $ 1015.82 and interest amount is $ 165.82

Solution:

The formula for amount when interest is compounded annually is:

$\mathrm{A}=P\left(1+r}\right)^{n}$

Where,

"A" is the total amount

"P" is the principal

"r" is the rate of interest in decimal form

"n" is the number of years

From given, $850 at 2% for 9 years, compounded annually

P = 850

t = 9 years

$r = 2 \% = \frac{2}{100} = 0.02$

Substituting the given values we get,

$A = 850(1+0.02)^9\\\\A = 850 \times 1.02^9\\\\A = 850 \times 1.1950\\\\A = 1015.82$

Thus total amount is $ 1015.82

Interest amount = Total amount - principal

Interest amount = 1015.82 - 850

Interest amount = 165.82

Thus total amount earned is $ 1015.82 and interest amount is $ 165.82