Quinn deposited $80 in a savings account earning 5% interest, compounded annually.
To the nearest cent, how much interest will he earn in 2 years?
[80 (1 + .05)^2] - 80
To calculate the interest earned in 2 years, you need to use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the amount of money accumulated after the specified time period
P = the principal amount (initial deposit)
r = the annual interest rate (as a decimal)
n = the number of times interest is compounded per year
t = the number of years
In this case, Quinn deposited $80 at an annual interest rate of 5%, compounded annually for 2 years.
Plugging the values into the formula:
A = 80(1 + 0.05/1)^(1*2)
A = 80(1.05)^2
A = 80(1.1025)
A ≈ $88.20
To find the interest earned, subtract the principal amount from the final amount:
Interest = A - P
Interest = 88.20 - 80
Interest ≈ $8.20
Thus, Quinn will earn approximately $8.20 in interest after 2 years.