You invested $2,000 at 5% compounded annually.Determine how much interest was earned in the fifth year.(Round your answer to two decimals.)
A)$100.00
B)$121.55
C)$500.00
D)$552.56

Question

Quizplus · Accepted Answer

In order to calculate the interest earned in the fifth year, we need to use the formula for compound interest: 
A = P(1 + r/n)^(nt) 
where:
A = final amount
P = principal amount
r = annual interest rate
n = number of times the interest is compounded per year 
t = time in years

In this case, 
P = $2,000 
r = 5% = 0.05 (as a decimal) 
n = 1 (compounded annually) 
t = 5

Therefore, 
A = $2,000(1 + 0.05/1)^(1*5) 
= $2,000(1.05)^5 
= $2,552.56

The interest earned in the fifth year is the difference between the final amount and the original principal: 
Interest = $2,552.56 - $2,000 
= $552.56

Rounded to two decimals, the answer is B) $121.55.

You Invested $2,000 at 5% Compounded Annually