Question

Foxtrot invests $440 today into an account that earns 14% simple interest. Golf invests $440 today into an account that earns 8.8% compound interest. What is the balance of the account with a greater value in 14 years?

Answer 1

a. $440 today into an account that earns 14% simple interest

Simple Interest =Principal*Rate * Time

= 440*14%*14

= $ 862.40

Total Amount in 14 years = Simple Interest + Principal

= $ 862.40+ $440

= $ 1302.40

b. $440 today into an account that earns 8.8% compound interest:

Future Value = Present Value * (1+ Rate of Interest)^Time

= 440*(1+8.8%)^14

= $ 1,433.04

Hence it an be seen that $440 today into an account that earns 8.8% compound interest gives higher value. Hence Balance in account = $ 1433.04

Answer = $ 1,433.04