Question

Alan Jackson invests $58,700 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdraws the accumulated amount of money. Compute the amount Alan would withdraw assuming the investment earns simple interest? Compute the amount Alan would withdraw assuming the investment earns interest compounded annually? Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually.

Answer 1

a.Simple interest=Principal*Interest Rate*Time period

=58700*8%*8=$37568

Future value=Principal+Simple interest

=37568+58700=$96268

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.

A=58700*(1.08)^8

=58700*1.85093021

=$108649.60(Approx).

c.We use the formula:
A=P(1+r/2)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=58700*(1+0.08/2)^(2*8)

=58700*1.87298125

=$109944(Approx).