Question

Find the future value of the account pays (a)simple interest and (b)compounded interest annually. $2000 at 9% for 7 years.

Answer 1

• (a)The future value at simple interest is $3,260.

,

• (b)The future value at compounded interest is $3,656.08

Explanation:

• Principal, P = $2,000

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• Rate, r = 9%

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• Time, t = 7 years

(a)Future value at simple interes

`\begin{gathered} F.V=Principal+Interest \\ =P+(PRT)/(100) \\ =2000+(2000*9*7)/(100) \\ =2000+1260 \\ =\$3,260 \end{gathered}`

The future value at simple interest is $3,260.

(b)Future value at compounded interest

`Future\;Value,A(t)=P(1+r)^t`

Substitute the values of P, r and t:

`\begin{gathered} A(7)=2000\left(1+(9)/(100)\right)^7 \\ =2000(1+0.09)^7 \\ =2000(1.09)^7 \\ =\$3656.08 \end{gathered}`

The future value at compounded interest is $3,656.08