Basic College Mathematics (10th Edition)

Published by Pearson
ISBN 10:
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Chapter 6 - Percent - 6.8 Compound Interest - 6.8 Exercises - Page 456: 44

Answer

(a) The compound interest account earns $\$474.55$ more. (b) Generally, compound interest earns more than simple interest.

Work Step by Step

(a) We calculate the total amount accumulated with interest ($\$10000$ at 5% for 10 years): $10000*0.05*10+10000=\$15,000$ Now we use the table (pg. 453) to calculate the compound amount ($\$9500$ at 5% for 10 years): $9500*1.6289=\$15,474.55$ We calculate the difference: $15474.55-15000=\$474.55$ Thus the compound interest account earns $\$474.55$ more. (b) Generally, compound interest earns more than simple interest because interest is calculated on the initial principal as well as the accrued interest ("interest on interest").
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