An employee deposits $6,000.00 in a retirement account that offers 3% interest compounded annually. The employee makes no additional deposits or withdrawals. Which amount is closest to the interest the employee will have earned at the end of 12 years?
$8160.00
$8554.57
$2160.00
$2554.57
The interest earned can be calculated using 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 = annual interest rate (decimal)
n = number of times that interest is compounded per year
t = time the money is invested/borrowed for, in years
Given:
P = $6,000
r = 0.03
n = 1 (compounded annually)
t = 12 years
Plugging the values into the formula, we get:
A = $6,000(1 + 0.03/1)^(1*12)
A = $6,000(1.03)^12
A = $6,000(1.485946)
A = $8,855.68
Therefore, the amount closest to the interest the employee will have earned at the end of 12 years is $8,855.68. The correct option is not among the provided ones, but it is closer to $8554.57.