Question

Assume 5000 is deposit in an account that pays 6% annual interest how much more would be in the account after 25 years if it were compounded monthly rather then quarterly

Answer 1

Answer:

$\ 164.62$

Step-by-step explanation:

we know that    

The compound interest formula is equal to  

$A=P(1+\frac{r}{n})^{nt}$  

where  

A is the Final Investment Value  

P is the Principal amount of money to be invested  

r is the rate of interest  in decimal

t is Number of Time Periods  

n is the number of times interest is compounded per year

case A) compounded monthly

in this problem we have  

$t=25\ years\\ P=\ 5,000\\ r=0.06\\n=12$  

substitute in the formula above  

$A=\ 5,000(1+\frac{0.06}{12})^{12*25}=\ 22,324.85$  

case B) compounded quarterly

in this problem we have  

$t=25\ years\\ P=\ 5,000\\ r=0.06\\n=4$  

substitute in the formula above  

$A=\ 5,000(1+\frac{0.06}{4})^{4*25}=\ 22,160.23$  

Find the difference

$\ 22,324.85-\ 22,160.23=\ 164.62$