Arithmetic Ability
Compound Interest

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Q.

An amount of 5,000 is invested at a fixed rate of 8 per cent per annum. What amount will be the value of the investment in five years time, if the interest is compounded annually

View Answer

Correct choice: A

Explanation:

The only part of this type of calculation that needs particular care is that concerning the interest rate. The formula assumes that r is a proportion, and so, in this case: r = 0.08 In addition, we have P = 5,000 and n = 5, so: V = P(1 + r)5 = 5,000 x (1 + 0.08)5 = 5,000 x 1.469328 = 7,346.64 Thus the value of the investment will be 7,346.64
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