Robert invested $4,000 five years ago at 4 percent interest. He takes out all his interest earnings and spends them immediately.

Question

4 years ago

13

Robert invested $4,000 five years ago at 4 percent interest. He takes out all his interest earnings and spends them immediately.

As a result, he only receives interest on his initial $4,000 investment. That is why he is earning __________________ only.

Business

1 answer:

docker41 [41] · Answer 1 · 2021-11-21T20:57:06+03:00

Answer:

simple interest

Explanation:

Simple interest is the amount of money that an investment earns during 1 given period, it is calculated by multiplying the principal amount of the investment by the interest rate = $4,000 x 4% = $160

On the other hand, compound interest is interest that gains more interest by itself. This means that the interest gained during a given period, will gain more interest itself for the next period. It is calculated using the following formula = principal amount x (1 + interest rate)ⁿ, where n is the number of periods.