Answer:
The formula for compound interest is:
A = P(1 + r/n)^(nt)
where:
A = the amount of money accumulated after n years, including interest
P = the principal amount (the initial investment)
r = the annual interest rate (as a decimal)
n = the number of times that interest is compounded per year
t = the number of years
In this problem, P = 1000, r = 0.10, n = 4 (since interest is compounded quarterly), and t = 2.
So, the formula becomes:
A = 1000(1 + 0.10/4)^(4*2)
Simplifying this expression, we get:
A = 1000(1.025)^8
A = 1000(1.2214)
A = 1221.40
Therefore, the principal at the end of 2 years is Birr 1221.40.