Answer:
Simple interest - $1,400
Compound interest - $1,480.24
Step-by-step explanation:
Simple interest is the interest earn only on he principal invested.
For example, with a rate of 10% simple interest, if I invest $10,000 for 2 years. Then my interest will be:
SI = 10,000 × 10% × 2 = $200
Accumulated amount can be calculated using this formula:
F.V = P + (P R × T)
FV = 10,000 + (10,000× 10% × 2)
= 10,200
Compound Interest: Under this arrangement, both the principal and interest would earn interest. Unlike the simple, any interest themselves would earn interest so far they are not withdrawn.
To compute compound interest
Year 1 = 10000 ×10% = 100
Year 2 = (10000×10%) + (100 ×10%) = 110
Total interest = 100 + 110 = 210
Note that the interest in year 2 is higher for compound interest than for simple interest.
Accumulated amount for compound interest is done as follows:
F.V = P × (1+r)^n
So lets apply this these concepts to our question:
a) Simple interest:
Accumulated amount(Future Value) :
F.V = P + (P × R × T)
F.V = $1000 + (1000 × 4% × 10)
= $1,400
b) Compound Interest
F.V = P × (1+r)^n
F.V = 1,000 × (1+0.04)^10
= $1480.24