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22 March, 17:46

Jimbo invested $9,250 in an account that pays 6 percent simple interest (annually). How much more could he have earned over a 7-year period if the interest had compounded semi-annually

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Answers (2)
  1. 22 March, 17:58
    0
    860.25

    Explanation:

    Solution

    Simple interest = 9250 + (9250*0.06*7) = 13,135

    Semi Annual Compound interest=A (1+r) ^nt) / n

    9250 (1+0.06) ^7*2) / 2

    =9250 (1+0.03) ^14

    =9250 (1.03) ^14

    =9250 (1.513) = 13,995.25

    Take the difference between between simple and compound interest

    13,995.25-13,135=860.25
  2. 22 March, 18:00
    0
    The difference is that the interest in Option 2 gets capitalized faster.

    Explanation:

    Giving the following information:

    Option 1:

    $9,250 in an account that pays 6 percent simple interest (annually).

    Option 2:

    $9,250 n an account that pays 6 percent semiannually.

    Number of years = 7 years

    We need to use the following formula:

    FV = PV * (1+i) ^n

    Option 1:

    FV = 9,250 * (1.06^7) = $13,908.58

    Option 2:

    FV = 9,250 * (1.03^14) = $13,991.45

    n = 2*7 = 14

    i = 0.06/2 = 0.03

    The difference is that the interest in Option 2 gets capitalized faster.
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