Question

Tom and Nancy both earned a $20,000 bonus three years ago. Nancy encouraged Tom

to use the money to buy the same stock she bought. Tom thought he knew better.
However, today they are comparing account statements. Tom's stock earned 9% per
year. Nancy's stock earned 12% per year. How much money did Tom leave on the table
by not following Nancy's stock tip? (Round to the nearest dollar.)

Answer 1

$1,800

Explanation:

The equation they probably taught is:

A = P(1 + rt)

A is the total amount after t years, P is the initial Principal, and r is the yearly interest rate as a decimal.

Let's set up Tom's equation:

A = 20,000(1 + 0.09·3)

= 20,000(1 + 0.27)

= 1.27·20,000

= 25,400

Nancy's is similar, only at 12% vs 9%:

A = 1.36·20,000 = 27,200

Nancy made $1,800 more than Tom because she picked a better-performing stock.

So to use their words: Tom "left $1800 on the table," which just means how much money he didn't make, or comparing what he could've made to what he did make. So it's just the difference between his amount and hers.