Find the compound interest on the following
30,000 for 2yrs at 5percent per annum
600,000 for 2yrs at 5percent per annum
To find the compound interest, we need to use the formula:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (in decimal form)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or the loan is outstanding
For the first case:
P = $30,000
r = 5% = 0.05
n = 1 (compounded annually)
t = 2 years
A = 30,000(1 + 0.05/1)^(1*2)
A = 30,000(1 + 0.05)^2
A = 30,000(1.05)^2
A = 30,000(1.1025)
A = $33,075
Compound Interest = A - P
Compound Interest = $33,075 - $30,000
Compound Interest = $3,075
Therefore, for $30,000 invested for 2 years at 5% per annum, the compound interest is $3,075.
For the second case:
P = $600,000
r = 5% = 0.05
n = 1 (compounded annually)
t = 2 years
A = 600,000(1 + 0.05/1)^(1*2)
A = 600,000(1 + 0.05)^2
A = 600,000(1.05)^2
A = 600,000(1.1025)
A = $661,500
Compound Interest = A - P
Compound Interest = $661,500 - $600,000
Compound Interest = $61,500
Therefore, for $600,000 invested for 2 years at 5% per annum, the compound interest is $61,500.