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Claudia invests £25000 at a rate of 2% per year compound interest - OCR - GCSE Maths - Question 22 - 2019 - Paper 1
Question 22
Claudia invests £25000 at a rate of 2% per year compound interest. Calculate the total amount of interest she will have earned after 5 years. Give your answer corre... show full transcript
Worked Solution & Example Answer:Claudia invests £25000 at a rate of 2% per year compound interest - OCR - GCSE Maths - Question 22 - 2019 - Paper 1
Step 1
Calculate the total amount of interest she will have earned after 5 years.
Answer
To calculate the total amount earned from compound interest, we use the formula:
where:
- is the amount of money accumulated after n years, including interest.
- is the principal amount (£25000).
- is the annual interest rate (2% or 0.02).
- is the number of years the money is invested (5 years).
Plugging in the values, we get:
Calculating the expression :
Now substituting this back into the amount formula:
The total interest earned can be calculated by subtracting the principal from the total amount:
Rounding to the nearest penny, the total interest earned is approximately £2602.02.