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Difficulty: EasyFinancial Mathematics (Interest, Profit, Loss, and Depreciation)

A trader invested ₦50,000\text{₦}50,000 in a savings scheme that pays compound interest at a rate of 10%10\% per annum compounded annually. What is the total compound interest earned at the end of 22 years?

  1. ₦10,500\text{₦}10,500Answer
  2. B
    ₦60,500\text{₦}60,500
  3. C
    ₦10,000\text{₦}10,000
  4. D
    ₦5,000\text{₦}5,000

Answer

The total compound interest earned at the end of 22 years is ₦10,500\text{₦}10,500.
The compound interest is obtained by subtracting the principal from the total accumulated amount. Using A=P(1+r)nA = P(1 + r)^n, the total amount is ₦60,500\text{₦}60,500. Subtracting the principal of ₦50,000\text{₦}50,000 yields ₦10,500\text{₦}10,500.

Step-by-Step Solution

1
Calculate the total accumulated amount using the compound interest formula A=P(1+r)nA = P(1 + r)^n
A=50,000×(1+0.10)2=50,000×1.21=₦60,500A = 50,000 \times (1 + 0.10)^2 = 50,000 \times 1.21 = \text{₦}60,500
Determines the total value of the investment at the end of the duration.
2
Calculate the compound interest earned using CI=A−PCI = A - P
CI=60,500−50,000=₦10,500CI = 60,500 - 50,000 = \text{₦}10,500
Subtracts the original principal from the total accumulated amount to find the interest portion.

Key Concept

Compound interest calculation
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Topics

Financial Mathematics (Interest, Profit, Loss, and Depreciation)

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