Question

You have $84,000 in an account which pays 2.1% compounded annually. How many additional dollars of interest would you earn over 9 years if you moved the money to an account earning 3.2% compounded quarterly? Round to the nearest cent.

Answer 1

At compounded annually:

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=84000*(1.021)^9

=84000*1.20567895

=$101277.03

Hence interest=A-P

=101277.03-84000

=$17277.03(Approx)

For compounded quarterly:

We use the formula:  
A=P(1+r/4)^4n
where
A=future value
P=present value  
r=rate of interest
n=time period.

A=84000*(1+0.032/4)^(4*9)

=84000*1.33222984

=$111907.31

Hence interest=111907.31-84000

=$27907.31(Approx)

Hence additional interest=27907.31-17277.03

=$10630.28(Approx)