Question

5. Assume that you and your best friend ench have $1000 to invest. You invest your money

Answer 1

Correct question reads;

Assume that you and your best friend each have $1000 to invest. You invest your money in a fund that pays 10% per year compound interest. Your friend invests her money at a bank that pays 10% per year simple interest. At the end of 1 year, the difference in the total amount for each of you is:

(a) You have $10 more than she does

(b) You have $100 more than she does

(c) You both have the same amount of money

(d) She has $10 more than you do

Answer:

(d) She has $10 more than you do

Explanation:

Using the compound interest formula

A= P [ (1-i)^n-1

Where P = Principal/invested amount, i = annual interest rate in percentage, and n = number of compounding periods.

My compound interest is:

= 1000 [ (1-0.1)^1-1

= $1000

$1,000 + $1,000 invested= $2,000 total amount received.

My friend's simple interest is;

To determine the total amount accrued we use the formula:

P(1 + rt) Where:

P = Invested Amount (1000)

I = Interest Amount (10,000)

r = Rate of Interest per year (10% or 0.2)

t = Time Period (1 )

= 1000 (1 + rt)

= 1000 (1 + 0.1x1)

= $1100 + $1000 invested = $2100 total amount received.

Therefore, we observe that she (my friend) has $100 more than I do.