Exercise 6-2 Newman Jackson invests $32,500 at 10% annual interest, leaving the
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Question
Exercise 6-2
Newman Jackson invests $32,500 at 10% annual interest, leaving the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Newman withdraws the accumulated amount of money.
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Exercise 6-2
Newman Jackson invests $32,500 at 10% annual interest, leaving the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Newman withdraws the accumulated amount of money.
Explanation / Answer
a.Simple interest=Principal*Interest Rate*Time Period
=$32500*10%*10years
=$32500
Hence future value=Simple interest+Principal
=$32500+$32500
=$65000.
b.
We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
Hence
A=$32500*(1.1)^10
=$32500*2.59374
=$84297(Approx).
c.We use the formula:
A=P(1+r/200)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.
A=$32500(1+0.1/2)^(2*10)
=$32500*2.65330
=$86232(Approx).