Claudia invests £25000 at a rate of 2% per year compound interest - OCR - GCSE Maths - Question 22 - 2019 - Paper 1

To calculate the total amount earned from compound interest, we use the formula:

$A = P(1 + r)^n$

where:

• $A$ is the amount of money accumulated after n years, including interest.
• $P$ is the principal amount (£25000).
• $r$ is the annual interest rate (2% or 0.02).
• $n$ is the number of years the money is invested (5 years).

Plugging in the values, we get:

$A = 25000(1 + 0.02)^5$

Calculating the expression $(1 + 0.02)^5$:

$(1.02)^5 \approx 1.1040808$

Now substituting this back into the amount formula:

$A \approx 25000 \times 1.1040808 \approx 27602.0201$

The total interest earned can be calculated by subtracting the principal from the total amount:

$\text{Interest} = A - P = 27602.0201 - 25000 \approx 2602.0201$

Rounding to the nearest penny, the total interest earned is approximately £2602.02.