Question

Nathan is opening a savings account that has a 10% simple interest rate. He deposits $75 in the account. After 5 years, he will have $112.50 in his account. How many more dollars would Nathan earn after 5 years with a 10% compounded interest rate?

Answer 1

Dollars earned after 5 years = $45.79

Explanation:

Given that:

Initial money deposited in account = $75

Time for which the money is deposited = 5 years

Interest rate = 10%

Nature of interest = Simple Interest

Amount after 5 years = $112.50

To find:

Total money earned after 5 years if the interest is compounded ?

Solution:

Formula for amount if the interest is compounded annually:

`A =P(1+(R)/(100))^T`

Where P is the principal amount (initial money)

R is the rate of interest

T is the time

Putting all the values:

`A =75* (1+(10)/(100))^5\\\Rightarrow \bold{A = \$120.79}`

Total more money earned or the interest after the compounding nature =

`A - P` = $120.79 - $75 = $45.79