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Donald Jackson invests $58,800 at 10% annual interest, leaving the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Donald withdraws the accumulated amount of money.

Required:
a. Compute the amount Donald would withdraw assuming the investment earns simple interest.
b. Compute the amount Donald would withdraw assuming the investment earns interest compounded annually.
c. Compute the amount Donald would withdraw assuming the investment earns interest compounded annually.

Sagot :

jepessoa

Answer:

a. Compute the amount Donald would withdraw assuming the investment earns simple interest.

future value = $58,800 x [1 + (10% x 10)] = $117,600

b. Compute the amount Donald would withdraw assuming the investment earns interest compounded annually.

future value = $58,000 x (1 + 10%)¹⁰ = $152,512

c. Compute the amount Donald would withdraw assuming the investment earns interest compounded annually.

this is identical to (b) = $152,512

the advantage of compound interest is that previously earned interest, will earn interest by itself.

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