If the analyst leaves the money in the account for 2 years,how much interest (in dollars) is earned on the account?

Question

A business analyst deposited $50,000 into an account earning an annual interest rate of 5.5% compounded monthly. If the analyst leaves the money in the account for 2 years,how much interest (in dollars) is earned on the account? (See Example 2 in this section. Round your answer to the nearest cent.)

Answer 1

interest = 50,000(1+.055/12)^(12(2))- 50,000

= $5,799.88 rounded off to nearest cent

general formula is

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

where P = starting Principal=50000

t=time in years=2

n= number of compounding periods=12

r= annual interest rate= 5.5%=.055

plug in those values into the formula

and simplify, using a calculator

or some very tedious long hand calculations

A= ending Amount= about $55,799.88

A-P = the interest =55799.88-50000= $5,799.88