An investment of $2,000 is earning interest at the rate of 6.2% compounded quarterly over 5 years. Approximately how much interest is earned on the investment?
http://qrc.depaul.edu/StudyGuide2009/Notes/Savings%20Accounts/Compound%20Interest.htm
http://www.moneychimp.com/articles/finworks/fmfutval.htm
interest = 2000(1.0155)^20 - 2000
= 720.37
or "appr" $ 720
To calculate the amount of interest earned on the investment, we can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the final amount including interest
P = the principal amount (the initial investment)
r = the annual interest rate (measured as a decimal)
n = the number of times that interest is compounded per year
t = the number of years
In this case, the principal amount (P) is $2,000, the annual interest rate (r) is 6.2% (or 0.062 as a decimal), the interest is compounded quarterly so (n) is 4, and the investment is held for 5 years (t).
Plugging these values into the formula, we get:
A = 2000(1 + 0.062/4)^(4*5)
= 2000(1 + 0.0155)^20
= 2000(1.0155)^20
Using a calculator or a spreadsheet program, we can find that (1.0155)^20 ≈ 1.352993.
Therefore, A ≈ 2000 * 1.352993 ≈ $2,705.99
To find the interest earned, we subtract the principal amount from the final amount:
Interest = A - P
= $2,705.99 - $2,000
= $705.99
Approximately $705.99 is earned as interest on the investment.