Question

Larry plants to invest 275,000 for 30 years at an anticipated rate of 6% per annum compounded yearly what is the approximate difference in his ending balance of the actual rate is 5% instead of six

Answer 1

$390,000

Step-by-step explanation

To do this, we will use the compound interest formula;

A = P(1+r)^t

P = 275000

rate r = 6%

Time t = 30years

Substitute

A = 275000(1+0.06)^30

A = 275000(1.06)^30

A = 275000(5.7435)

A = 1,579,460.07

For the rate of 5%

A = 275000(1+0.05)^30

A = 275000(1.05)^30

A = 275000(4.3219)

A = 1,188,534.15

Takeing their difference;

Difference = 1,579,460.07-1,188,534.15

Difference =390,925.92

Hence the approximate difference in his ending balance of the actual rate is 5% instead of six ​is about $390,000