Question

If the value of the principal today is $10,000 and the interest rate is 21.22%, what is the total compound interest income at the end of six years?

$21,728.22

$25,567.43

$20,000.54

$45,067.22

None of the above.

Answer 1

Standard compound interest formula is :

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

A = Accrued Amount (principal + interest)

P = Principal Amount = $10000

r = Annual Nominal Interest Rate =21.22%   [Assuming 21.22% given is the annual interest rate]

t = Time Period in years = 6

n = number of compounding periods =1

A = 10000 * (1+0.2122/1)^1*6 = 10000 * (1.2122)⁶ = 10000 * 3.1728217 = $31728.22

Also, A = Principal + Interest

$31728.22 = $10000 + Interest

Interest = $31728.22 - $10000 = $21728.22

Total compound interest income at the end of six years is $21,728.22