Chapter 10.3, Problem 35E

To determine

To calculate the compound interest.

Answer to Problem 35E

$189

Explanation of Solution

Given Information: P = $1200, r = 5%, t = 3 years

Formula Used:Compound Interest CI= A − P, Amount A= $\mathrm{P}\times {\left(1+\frac{r}{100}\right)}^t$

Calculation:

Compound interest is the interest calculated on the principal and the interest accumulated over the previous period. It is different from the simple interest where interest is not added to the principal while calculating the interest during the next period. Compound interest finds its usage in most of the transactions in the banking and finance sectors and also in other areas as well. 

Compound Interest CI= A − P, Amount A= $\mathrm{P}\times {\left(1+\frac{r}{100}\right)}^t$

Now find Amount A

P = $1200, r = 5%, t = 3 years

Amount A= $1200\times {\left(1+\frac{5}{100}\right)}^3$

So,

Amount A= $1200\times {\left(\frac{105}{100}\right)}^3$

So,

Amount A=$ $1200\times {\left(\frac{21}{20}\right)}^3$

So,

Amount A=$ $1200\times {\left(\frac{21}{20}\right)}^3$

So,

Amount A=$ $1200\times 1.15$

Hence,

Amount = $1389.15

Compound Interest CI= A − P

CI = $1389.15 - $1200

Compound Interest CI = $189.15

Nearest Compound Interest CI = $189