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Diana can either invest 20000 dollars for 4 years with a simple interest rate of 6% or an interest rate of 7% which compounds quarterly. How many more dollars, rounded to the nearest dollar, would she get with the better interest rate than with the worse one?

Creeperhissboom  Apr 19, 2018

Best Answer 

 #1
avatar+13613 
+1

FV = PV (1+i)^n 

 

First scenario  

FV = 20,000 (1.06)^4    If compounded annually

  or just  20,000 + 4*(20000*.06)    If only 6% for the entire four years.

 

Second scenario

FV = 20,000 (1+ .07/4)^16

 

I'll let you crunch the numbers to compute the differences !

ElectricPavlov  Apr 19, 2018
edited by ElectricPavlov  Apr 19, 2018
 #1
avatar+13613 
+1
Best Answer

FV = PV (1+i)^n 

 

First scenario  

FV = 20,000 (1.06)^4    If compounded annually

  or just  20,000 + 4*(20000*.06)    If only 6% for the entire four years.

 

Second scenario

FV = 20,000 (1+ .07/4)^16

 

I'll let you crunch the numbers to compute the differences !

ElectricPavlov  Apr 19, 2018
edited by ElectricPavlov  Apr 19, 2018
 #2
avatar
0

EP:

The first one is SIMPLE interest:

$20,000 x 0.06 x 4 =$4,800 - simple interest for 4 years.

 

$20,000 x 1.06^4 =25,249.54 - $20,000 =$5,249.54 - This is annual compounded interest @6%.

Guest Apr 19, 2018
 #3
avatar+13613 
+1

Thanx..... I realized that soon after I posted it and 'fixed' it!!   D'Oh!

ElectricPavlov  Apr 19, 2018

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