Question

David Spear invested $14,000 today in a fund that earns 10% compounded annually. Click here to view factor tables To what amount will the investment grow in 4 years? To what amount would the investment grow in 4 years if the fund earns 10% annual interest compounded semiannually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.) Investment at 10% annual interest $enter a dollar amount rounded to 0 decimal places Investment at 10% annual interest, compounded semiannually $enter a dollar amount rounded to 0 decimal places eTextbook and Media

Answer 1

The investment will grow to $20,497 in four years if interest is compounded annually.

On other hand, the investment will grow to $20,684 if interest is compounded at 10% semi-annually

Explanation:

Using compound interest formula below the,the total investment after four years:

A=P(1+r/n)^nt

A=Future value

P=Principal amount invested

n=number of time interest is paid per time period

t=number of time period

First question:

P=$14000

r=10%

n=4 years

t=1 period

A=$14000*(1+0.1)^4

A=$20497.4

Second question

P=$14000

r=10%

n=4years

t=2 times

A=$14000*(1+0.1/2)^4*2

A=$20684.38

In short , the investment grows better if the interest is compounded at 10% semi-annually.