Compound interest exmaple
Chemistry
ScanSolve AI Answer
Step-by-step solution
3 stepsLet's look at an example of compound interest.
Suppose you invest $1000 at an annual interest rate of 5%, compounded annually.
Formula for compound interest: A = P(1 + r)ⁿ
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount ($1000)
r = the annual interest rate (5% or 0.05)
n = the number of years the money is invested or borrowed for
Calculate the amount after 1 year.
A = 1000(1 + 0.05)¹
A = 1000(1.05)
A = $1050Calculate the amount after 2 years.
A = 1000(1 + 0.05)²
A = 1000(1.05)²
A = 1000(1.1025)
A = $1102.50Calculate the amount after 5 years.
A = 1000(1 + 0.05)⁵
A = 1000(1.05)⁵
A = 1000(1.27628)
A = $1276.28After 5 years, your initial investment of $1000 would grow to $1276.28 with compound interest.
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