Question

Perform online research and find the formula for calculating compound interest. If Mr. John Chrystal invests $6,000 today (Present Value) at a compound interest of 9 percent, calculate the Future Value of the investment after 30 years using the compound interest formula. In addition, calculate the Future Value of the investment 30 years from now using a 9 percent simple interest rate. State the difference between the two Future Values (using compound and simple interest). You may use an online calculator to determine the answer.

Answer 1

It is 7,816.79

Step-by-step explanation:

joemama10110101

Answer 2

Calculation using compound interest:

The formula for calculating compound interest is below:

In the above given formula,

FV = Future Value

PV = Present Value

r = rate of interest

n = number of years to be compounded

Thus, we have:

Thus, the Future Value (FV) of the given investment will be $79,800 after 30 years at a compound interest rate of 9 percent.

Calculation using simple interest:

Simple interest rate applies only on the principal value of the initial investment every year. Thus, 9 percent of $6,000 is $540.

The simple interest earned over 30 years =

FV = $16,200 (simple interest earned over 30 years) + $6,000 (initial investment) = $22,200

Thus, the Future Value (FV) of the given investment will be $22,200 after 30 years at a simple interest rate of 9 percent.

The difference between the two FVs = $79,800 (using compound interest) – $22,200 (using simple interest) = $57,600. This illustrates the power of compounding.

Step-by-step explanation: