Answer to Question #171398 in Financial Math for King

Question

Compound amount

2) (a) find the simple interest of 60,000 for one year at 10%

(b) what is the compound interest of the same investment is compounded semi annually ?

(c) how much is the compound interest greater than the simple interest ?

Answer 1

(a) find the simple interest of 60,000 for one year at 10%

A = P ( 1+ r) ^T

A = 6000( 1 +0.10 ) ¹

A = 6000(1.10)¹

A = 66000

I = 66000- 60000= 6000

(b) what is the compound interest of the same investment is compounded semi annually ?

A = P ( 1+ 0.05)^1/2

A = 60000( 1 +0.05 ) ^1/2

A = 60000(1+0.05)^1/2

A = 61482

Therefore:

A = P ( 1+ 0.05)^1/2

A = 61482( 1 +0.05) ^1/2

A = 61482(1.05)^1/2

A = 63000

I = 63000-60000= 3000

(c) how much is the compound interest greater than the simple interest ?

63000-60000= 3000