Dalton deposited $7,000 in an account earning 10% interest compounded annually.
To the nearest cent, how much interest will he earn in 4 years?
The formula to calculate compound interest is:
A = P(1 + r/n)^(nt)
Where:
A is the future value of the investment/loan, including interest
P is the principal investment amount (the initial deposit or loan amount)
r is the annual interest rate (decimal)
n is the number of times that interest is compounded per year
t is the number of years
Using this formula, we can calculate the future value of Dalton's deposit after 4 years:
A = 7000(1 + 0.10/1)^(1*4)
A = 7000(1 + 0.10)^4
A = 7000(1.10)^4
A ≈ 7000(1.4641)
A ≈ 10,248.70
To calculate the interest earned, we subtract the principal investment amount from the future value:
Interest = A - P
Interest = 10,248.70 - 7000
Interest ≈ 3,248.70
Therefore, Dalton will earn approximately $3,248.70 in interest over 4 years.