Question

You can invest in an account that pays simple interest or an account that pays compound interest. In either case, you plan to invest $658 today and both accounts have an annual interest rate of 5.5%. How much more interest will you receive in the 7th year in the account that pays compound interest? Round your answer to the nearest penny, and do not type the "$" sign?

Answer 1

Step 1:	Interest as per compounding interest
	Value at the end of year 6
	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $658*( 1+0.055)^6
	=658*1.37884
	= $907.28
	Value at the end of year 7
	= $658*( 1+0.055)^7
	=658*1.45468
	= $957.18
	Interest eanred during 7th year = $957.18-907.28
	=$49.9
Step 2:	Interest as per simple interest
	=$658*5.5%*1
	=$36.19
Step 3 :	Excess Interest
	=$49.9-36.19
	=$13.71