Question

Construct a data table in excel that will show lindsay the balance of her retirement account for various levels of annual investment and return. if lindsay invests $11,000 at return of 6%, what would be the balance at the end of 20th year in the account

Answer 1

Given:
Principal = 11,000
return rate = 6%
term = 20 years

Without additional information, I can treat this problem as a simple interest problem.

Simple Interest = Principal * rate * term
Simple Interest = 11,000 * 0.06 * 20 years
Simple Interest = 13,200

11,000 + 13,200 = 24,200 total balance after 20 years.

Assuming that the interest is compounded once a year.

A = P (1 + i/n)^t*n
A = 11,000 (1 + 0.06/1)^20*1
A = 11,000 (1.06)^20
A = 11,000 * 3.207
A = 35,278.49 total amount after 20 years.

The amount involving compounding interest is greater than simple interest because in compounding interest, the interests earned in the previous years also earn its own interest. Whereas, in simple interest only the principal earns an interest.