The formula for compound interest is given by:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for
In this case, Nicholas has $5,495 as the principal investment, the interest rate is 14% or 0.14 (decimal) and it is compounded annually, so n = 1.
Substituting these values into the formula, we get:
A = 5495(1 + 0.14/1)^(1*4)
Simplifying further:
A = 5495(1.14)^4
A ≈ 7770.50
To find the amount of interest earned, we need to subtract the principal investment from the future value:
Interest = A - P
Interest = 7770.50 - 5495
Interest ≈ 2275.50
Therefore, Nicholas will earn approximately $2,275.50 in interest in 4 years.