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
$2160.00
$2554.57
The formula to calculate compound interest is:
A = P(1 + r/n)^(nt)
Where:
A = final amount
P = initial principal balance ($6,000.00 in this case)
r = annual interest rate (3% or 0.03)
n = number of times interest is compounded per year (1 for annually)
t = number of years (12 years in this case)
Plugging in the values:
A = $6,000(1 + 0.03/1)^(1*12)
A = $6,000(1.03)^12
A = $6,000(1.429144)
A = $8,575.67
Therefore, the interest earned after 12 years would be $8,575.67 - $6,000 = $2,575.67.
The amount closest to this is $2554.57.