Question

Mr. Charles gave both of his sons, Joe and Bill, $5,000. Joe deposited the money in an account that offered simple interest of 11% per year. Bill deposited the money in a bank that offered an interest of 9% compounded annually. Who would be richer at the end of 6 years and by what amount? Joe: $ , Bill: $ , . earns more.

Answer 1

Bill by $85

Explanation:

Bill : Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one. The total initial amount of the money given is then subtracted from the resulting value.

Compounded annually for 6 years at 9 % interest Bill would have $8385.50.

Joe : Simple interest at 11% a year The formula we'll use for this is the simple interest formula.

P is the principal amount, $5000.00.

r is the interest rate, 11% per year, or in decimal form, 11/100=0.11.

t is the time involved, 6year(s) time periods.

So, t is 6year time periods.

To find the simple interest, we multiply 5000 × 11 × 6 = 3300

Usually now, the interest is added onto the principal to figure some new amount after 6 year(s),

or 5000.00 + 3300.00 = 8300.00

As you can see Bill has more by $85.

^Check yourself