Calculate the compound interest for $5000 invested at 5% for 3 years
What is the amount of compound interest earned when $5000 is invested at an interest rate of 5% for 3 years?
The compound interest earned when $5000 is invested at an interest rate of 5% for 3 years can be calculated using the formula:
Compound Interest = P(1 + r/n)^(nt) - P
Where:
P = Principal amount (initial investment) = $5000
r = Annual interest rate = 5% = 0.05
n = Number of times interest is compounded per year (assuming compounded annually)
t = Number of years = 3
By plugging these values into the formula, we can calculate the compound interest earned.
To calculate the compound interest, we first need to determine the value of n since the compounding period is not specified in the given data. Assuming the interest is compounded annually, we have n = 1.
Substitute the values into the formula:
Compound Interest = $5000[(1 + 0.05/1)^(1*3) - 1]
Compound Interest = $5000[(1.05)^3 - 1]
Compound Interest = $5000[1.157625 - 1]
Compound Interest = $5000 * 0.157625
Compound Interest = $788.13
Therefore, the amount of compound interest earned when $5000 is invested at an interest rate of 5% for 3 years is $788.13.