Multiple choice

Audrey, a businessman based in New York, earns a profit of $20,000 and decides to invest the same in short-term corporate bond funds for 9 months. These funds guarantee to pay 2 percent interest at the end of 3 months, another 3 percent interest at the end of 6 months, and 4 percent interest at the end of the 9-month contract. If he never withdraws any amount of money during the entire duration, what will be the total amount of interest earned by Audrey?

  1. $1,400.00
  2. $1,600.00
  3. $1,852.48
  4. $1,881.33
  5. $1,995.45
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The interest is calculated sequentially: 20000 * 0.02 = 400 (after 3 months). New principal is 20400. 20400 * 0.03 = 612 (after 6 months). New principal is 21012. 21012 * 0.04 = 840.48 (after 9 months). Total interest = 400 + 612 + 840.48 = 1852.48.

AI explanation

Since the interest is added to the principal and not withdrawn, the investment grows via compound interest using the formula Amount = P * (1 + r1) * (1 + r2) * (1 + r3). Substituting the given interest rates and principal gives Amount = 20000 * 1.02 * 1.03 * 1.04, which equals 21852.48. Subtracting the original principal of 20000 from this amount gives the total interest earned of $1,852.48.

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