What is the interest on 1200 invested for 2 years in an account that earns 5 percent interest per year?

The answer, assuming compounding once per year and using generic monetary units (MUs), is MU123.

In the first year, MU1,200 earning 5% generates MU60 of interest.

The MU60 earned the first year is added to the original MU1,200, allowing us to earn interest on MU1,260 in the second year.

MU1,260 earning 5% generates MU63.

So, MU60 + MU63 is equal to MU123.

The answers will be different assuming different compounding periods as follows:

Compounding Period Two Years of Interest

No compounding MU120.00

Yearly compounding MU123.00

Six-month compounding MU124.58

Quarterly compounding MU125.38

Monthly compounding MU125.93

Daily compounding MU126.20

Continuous compounding MU126.21