When interest is compounded once a year, the formula for compound interest is A=P(1+r)t in the formula, A represents the amount of money after t years, p represents the principal, and interest rate written as a decimal. If p=$500 r=3% and t=2
What is the amount of compound interest?
The interest part would be
P(1+r)^t - P
I don't understand
Is that the answer
To calculate the amount of compound interest, we need to use the formula:
A = P(1 + r)^t
Where:
A represents the amount of money after t years,
P represents the principal (initial amount of money),
r represents the interest rate written as a decimal, and
t represents the number of years.
In this case, we have:
P = $500 (principal)
r = 3% = 0.03 (interest rate written as a decimal)
t = 2 (2 years)
Now, let's substitute these values into the formula and solve for A.
A = 500(1 + 0.03)^2
First, calculate the value inside the parentheses:
(1 + 0.03) = 1.03
Next, raise 1.03 to the power of 2:
1.03^2 = 1.0609
Now, multiply this value by the principal P:
500 * 1.0609 = $530.45
Therefore, the amount of money (A) after 2 years with a principal of $500 and an interest rate of 3% compounded once a year is $530.45.
To find the amount of compound interest, subtract the principal (P) from the final amount (A):
Compound Interest = A - P
Compound Interest = $530.45 - $500
Compound Interest = $30.45
So, the amount of compound interest is $30.45.