Question

Beatrice invests $1,320 in an account that pays 4 percent simple interest. How much more could she have earned over a 5-year period if the interest had been compounded annually

Answer 1

Answer:

How much more earned is $21.98

Explanation:

Calculation of the amount earned when investment in paying on simple interest

Interest = Amount  * Interest rate * No of years

Interest = 1320 * 4% * 5

Interest = $264

Total amount = Interest + Amount invested

Total amount = $1320 + 264

Total amount = $1,584

Therefore, the total amount earned when earning on simple interest of 4% is $1,584

Calculation of the amount earned when investment interest in paying compounded annually

Pv= 1320

n= 5

i= 4%

Fv= ?

Fv= P(1+i)^-n

Fv= 1320(1+0.04)^5

Fv= 1320(1.04)^5

Fv= 1320(1.216652)

Fv= $1605.98

Therefore, the total amount earned when earning on interest compounded annually is $1,605.98

Calculation of how much more earned

Amount earned = Amount earned as per compounded interest - Amount earned as per simple interest

Amount earned = $1,605.98 - $1,584

Amount earned = $21.98

Therefore, how much more earned is $21.98