Question

If $4,000 is invested in an account for 25 years. Calculate the total interest earned at the end of 25 years if the interest is: (a) 7% simple interest: $ (b) 7% compounded annually: $ (c) 7% compounded quarterly: $ (d) 7% compounded monthly: $ Round your answers to the nearest cent.

Answer 1

The interest is a) $7000

b) $17709.73

c) $18672.62

d) $18901.67

What is the formula for simple and compound interest?

Simple interest = (P× r× t)

Compound interest = P(1+r/n)^nt - P

We will find the interest as shown below:

P=$4,000

t=25 years

a) r=7%=0.07

Simple interest = (P× r× t)

= (4000×0.07×25)

= $7000

b) r=7%=0.07

Compound interest = P(1+r)^t - P

= 4000(1+0.07)^25-4000

= $17709.73056

rounding to nearest cents

= $17709.73

c) r=7%=0.07

n=4

Compound interest = P(1+r/n)^nt - P

= 4000(1+0.07/4)^(25*4)-4000

= $18672.62375

rounding to nearest cent

= $18672.62

d) r=7%=0.07

n=12

Compound interest = P(1+r/n)^nt - P

= 4000(1+0.07/12)^(25*12)-4000

= $18901.6728

rounding to nearest cent

= $18901.67

Hence, the interest is a) $7000

b) $17709.73

c) $18672.62

d) $18901.67

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