Here, we are required to determine how much interest 2000 would earn compounded annually in two years at the rate of 1.2.
The interest earned is I = 880
To calculate the final amount A',
- The system can be assessed in terms of simple interest annually.
- Fir the first year, A = P(rt)
- where, r = 1.2 and t = 1.
Therefore;
- A = 2000(1.2×1).
- A = 2400.
Therefore, during the second year, 2400 is the new Principal amount.
Therefore, A' = 2400 (1.2×1).
Therefore, the amount due after 2 years is 2880.
However, since the starting principal is 2000,
- The interest is I = A' - P
- i.e I = 2880 - 2000
Interest is therefore, I = 880.
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