Question

Rick deposit is $1000 into an investment account which earns 4% interest annually. Sally loans what doesn’t dollars to a friend, and her friend agrees to pay her $50 each year, and will return the $1000 after 10 years

Determine the amount of money each person has after 10 years

Answer 1

After 10 years

Rick will have $1,480.24

Sally will have $1,500

Explanation:

Data provided in the question:

Principle amount = $1,000

Now,

For Rick

Interest rate by bank, r = 4% = 0.04

Time period, n = 10 years

Now,

Final amount after 10 years with Rick using the compounding formula

Final amount = Principle × (1 + r)ⁿ

= $1,000 × (1 + 0.04 )¹⁰

= $1,480.24

For Sally

Amount paid each year = $50

Therefore,

Total amount paid in 10 years = $50 × 10

= $500

Thus,

Final amount Sally will have after 10 years

= $1,000 + Total amount paid in 10 years

= $1,000 + $500

= $1,500

Hence,

After 10 years

Rick will have $1,480.24

Sally will have $1,500