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29 November, 20:42

What is the total interest earned in two years on an account containing $500 at 3.5% interest, compounded annually?

$35.61

$35.16

$35.00

$36.51

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  1. 29 November, 21:46
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    Answer: Compound interest is $36.61

    Step-by-step explanation:

    Initial amount deposited into the account is $500 This means that the principal,

    P = 500

    It was compounded annually. This means that it was compounded once in a year. So

    n = 1

    The rate at which the principal was compounded is 3.5%. So

    r = 3.5/100 = 0.035

    It was compounded for 2 years. So

    t = 2

    The formula for compound interest is

    A = P (1+r/n) ^nt

    A = total amount in the account at the end of t years. Therefore

    A = 500 (1+0.035/1) ^1*2

    A = 500 (1.035) ^2 = $535.61

    Compound interest = 535.6 - 500 = $35.61
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