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# Interest-ing problem...

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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?

Apr 19, 2018

#1
+18274
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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 !

Apr 19, 2018
edited by ElectricPavlov  Apr 19, 2018

#1
+18274
+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
#2
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%.

Apr 19, 2018
#3
+18274
+1

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

ElectricPavlov  Apr 19, 2018