Question

10.Adrienne is going to deposit $8,500 in an account that earns 2.5% interest for 360 months. How much more interest will she earn if the account earns annual compound interest rather than annual simple interest?

Answer 1

Answer:

Difference= $3,090.15 in favor of compounded interest

Step-by-step explanation:

Giving the following information:

Present value (PV)= $8,500

Ineterest (i)= 0.025/12= 0.00208

Number of periods (n)= 360 months

We will calculate the future value of each option and determine the difference:

Simple interest:

FV= (PV*i*n) + PV

FV= (8,500*0.00208*360) + 8,500

FV= $14,864.8

Compounded interest:

FV= PV*(1+i)^n

FV= 8,500*(1.00208^360)

FV= $17,958.95

Difference= $3,090.15