Question

Bank A and Bank B are offering you an investment. Bank A's investment pays 5% simple interest, nile Bank B's investment pays 5% compound interest. If you invest $1,000 in Bank B's investment, w much more will you have after 10 years than if you invested in Bank A's investment?

Answer 1

AMOUNT INVESTED	1000
BANK A
SIMPLE INTEREST	5%
SIMPLE INTEREST EARNED PER YEAR	.05*1000
SIMPLE INTEREST EARNED PER YEAR	50
SIMPLE INTEREST EARNED IN TEN YEARS	50*10
SIMPLE INTEREST EARNED PER YEAR	500
You will have 1500 at the end of 10 years.
AMOUNT INVESTED	1000
BANK B
COMPOUND INTEREST	5%
Future Value = Present Value*((1+r)^t)
where r is the interest rate that is 5% and t is the time period in years that is 10.
Future value = 1000*((1.05)^10)
Future value = 1000*((1.628895)
Future value = 1628.895.
You will have 1628.89 at the end of 10 years.
The excess amount you will have	1628.89 - 1500
The excess amount you will have	128.89
If you invest 1000 in Bank B's investment, you will have
$128.89 more than if you invested in Bank A's investment.