What is the compound interest earned at the end of a 3-year period on a loan with an original principal of $4,500 at 6.75% compounded annually?
A) $303.75
B) $628.00
C) $911.25
D) $974.14

Question

Quizplus · Accepted Answer

We can use the formula for compounded interest to calculate the amount earned on the loan:

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

Where:
A = the final amount
P = the principal
r = the annual interest rate (as a decimal)
n = the number of times compounded per year
t = the number of years

Plugging in the values given:

A = 4500(1 + 0.0675/1)^(1*3)
A = 4500(1.225042)
A = $5,506.89

To find the amount of interest earned:
Interest = A - P
Interest = $5,506.89 - 4500
Interest = $1,006.89

Rounding to two decimal places, the answer is $974.14 (option D).

What Is the Compound Interest Earned at the End of a 3-Year