Question

Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal Invests $5,000 at 7 percent at age 30. Both investments compound Interest annually. Both twins retire at age 60 and nelther adds nor withdraws funds prior to retirement. Which statement is correct? a) Nan will have less money when she reires than Neal. b) Neal will earn more Interest on Interest than Nan. c) Neal will earn more compound Interest than Nan. d) If both Nan and Neal walt to age 70 to retire they will have equal amounts of savings e) Nan will have more money than Neal at any age.

Answer 1

Answer:

e) Nan will have more money than Neal at any age.

Explanation:

In compound interest, the interest earned in the year is added to the principal amount at the beginning of the next year. Earned interest becomes part of the principal which makes it earn interest. Adding interest to the principal to earn more interest is known as compounding.

The longer the investment period is, the more time interest will be compounded, and the more the investment will grow.  Nan made her investment at age 25. By the time she retires, her investment period will be 35 years.  Neil started her investment at age 30. At any given time after they are both age 30, Nan's investment will have earned compounded interest five more times than Neil. Therefore, Nan will have more money at any given time.