Question

Neil and John both need $20,000 to clear off a mortgage payment after 10 years. Neil invests $15,000 at 3 percent per annum of simple interest for 10 years, and John invests $15,000 at 3 percent compound interest compounded annually for 10 years. Who would be able to repay the amount from this investment easily?

Answer 1

Answer:

John

Explanation:

Neil will have the following amount after ten years.

Simple interest is calculated using the formula,

I= p x r x t

where I= interest, P= principal amount, r = interest rate, t is time

for Neil interest will be= $15,000 x 3/100 x 10

=$15,000 x 0.03 x 10

=$4500

Neil will have principal + interest amount

=$4,500 + $15,000

=$19,500

John invested in a compound interest account.

The amount after ten years will be

The formula for compound interest is

FV = PV × (1+r)^n

where FV = Future Value

PV = Present Value

r = annual interest rate

n = number of periods

After ten years, John will have

Fv= $15,000 x (1 + 3/100)^10

Fv= $15,000 x (1.03)^10

FV =$15,000 x 1.34391

Fv = $15,158.75

John will be able to clear his mortgage.