Question

Steven invests $20,000 in an account earning 3% interest, compounded annually for 10 years. Three years after Stevens's initial investment, Evan invests $10,000 in an account earning 7% interest, compounded annually for 7 years. Given that no additional deposits are made, compare the amount of interest earned after the interest period ends for each account. (round to the nearest dollar)

Answer 1

The formula to find the amount is

here A is amount

P is the principal

'r' is the rate of interest

n is the number of years.

Case 1.

Stevan invests

P =$ 20,000

r = 3% = 0.03

n = 10 years

Hence the interest earned

= A - P = 26878.33 - 20000 = $6878.33

Case 2.

Evan invests

P = $10,000

r = 7% = 0.07

n = 7 years

Hence the interest earned

= A - P = 16057.81 - 10000 = 6057.81

Difference in the interest = 6878.33 - 6057.81 = $820.52

Rounded to the nearest dollar difference in interest = $821