To save for a child's education, the Petersens deposited $2300 into an account that pays 4% annual interest compounded daily. Find the amount of interest earned on this account over a 10-year period. Round your answer to the nearest cent.

Question

Quizplus · Accepted Answer

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (initial investment), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. Here, P = $2300, r = 4% or 0.04, n = 365 (since the interest is compounded daily), and t = 10 years. Plugging these values into the formula gives A = 2300(1 + 0.04/365)^(365*10). Calculating this gives A ≈ $3431.12. The interest earned is A - P = $3431.12 - $2300 = $1131.12.

To Save for a Child's Education, the Petersens Deposited $2300