Question

Tom and Jerry both invested the same amount for 8 years. If Tom’s rate of return is 9% and Jerry’s rate is 10% compounded annually then find how much more Jerry will have after 8 years than Tom?
e) 5.7% (f) 7.6%
g) 15.1% (h) 6.7%
Kindly explain it with solution.
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Answer 1

Answer:

The correct option is;

(f) 7.6%

Step-by-step explanation:

The given parameters are;

The number of years Tom and Jerry are investing their money, t = 8 years

The rate of return for Tom's investment, r₁ = 9%

The rate of return for Jerry's investment, r₂ = 10%

The rate at which the interest is compounded, n = Annually =  1

Let P represent the equal amount of money each of Tom and Jerry invested separately

The amount, A, of the investment is given by the following formula;

$A = P \times \left (1 + \dfrac{r}{n} \right ) ^{n \times t}$

Substituting the known values for Tom, gives;

$A = P \times \left (1 + \dfrac{0.09}{1} \right ) ^{1 \times 8} = P \times 1.09^8 \approx 1.993\cdot P$

The amount Tom has after 8 years ≈ 1.993·P

Substituting the known values for Jerry, gives;

$A = P \times \left (1 + \dfrac{0.1}{1} \right ) ^{1 \times 8} = P \times 1.1^8 \approx 2.144\cdot P$

The amount Jerry has after 8 years ≈ 2.144·P

The percentage amount Jerry has more than Tom after 8 years, PA is given as follows;

$PA = \dfrac{2.144 \cdot P - 1.993 \cdot P}{1.993 \cdot P} \times 100 = 7.57651781234\% \approx 7.6 \%$

The amount Jerry will have after 8 years than Tom = PA ≈ 7.6%.